The risk-free interest rate in 1.Bissou option pricing model must be in the form of continuous compound interest. A simple or discontinuous risk-free interest rate (set as r0) is usually compounded once a year, while R requires the interest rate to be compounded continuously. R0 must be converted into r to be substituted in the above formula. The conversion relationship between them is: r = ln( 1+r0) or r0=Er- 1. For example, r0=0.06, then r=ln( 1+0.06)=0.0583, that is, 100 is invested with 5.83% continuous compound interest, and the next year 106 is obtained. This result is consistent with the answer directly calculated by r0=0.06.
The second is the relative expression of the option validity period T, that is, the ratio of the option validity days to 365 days a year. If the option is valid for 100 days, then T= 100/365=0.274.