We describe a mathematical model linking changes in cerebral blood flow, blood volume and the blood oxygenation state in response to stimulation. The model has three compartments to take into account the fact that the cerebral blood flow and volume as measured concurrently using laser Doppler flowmetry and optical imaging spectroscopy have contributions from the arterial, capillary as well as the venous compartments of the vasculature. It is an extension to previous one-compartment hemodynamic models which assume that the measured blood volume changes are from the venous compartment only. An important assumption of the model is that the tissue oxygen concentration is a time varying state variable of the system and is driven by the changes in metabolic demand resulting from changes in neural activity. The model takes into account the pre-capillary oxygen diffusion by flexibly allowing the saturation of the arterial compartment to be less than unity. Simulations are used to explore the sensitivity of the model and to optimise the parameters for experimental data. We conclude that the three-compartment model was better than the one-compartment model at capturing the hemodynamics of the response to changes in neural activation following stimulation.