Modulation Problem

Hi, everybody I'm currently working on a project where I need to design a oscillator (~104k Hz) used as a carrier signal that will modulate a signal (music fie, square wave,..). Im having trouble figuring out why my output signal is being reduced with time and also why my modulatos is only modulating half of what it should be.

 

Also output signal will be connected to an LED as an Antena that will be received by a light reciever.

If you want linear behavior from the LED,you have to bias it with DC, and drive it from a current source, since the optical output is typically reasonably linear with current.
The drive circuit fails to meet either criteria.
PWM may be a better scheme, since you don't have to worry about linearity and efficiency so much, you are just turning the LED current source on and off digitally, and the modulation scheme is independent of the LED driver.
cheers,
Richard