to identify a two-dimensional stochastic volatility process for the level of rates. The process is identified step by … Heston stochastic volatility models informs about what different specifications of the driving SDEs has to offer in terms of …-dependent volatility function and a mean reverting volatility process. The performance of the extended (SABR with mean-reversion) model is …

-known “blow up” effect; it is necessary to truncate the volatility function at some suitably high level of rates. Much greater …

calculation. Finally applying the Radon-Nikodym derivative to change measure from the annuity measure to the savings account …