Mellin Transform Method for European Option Pricing with Hull-White Stochastic Interest Rate

Ji-Hun Yoon

Journal of Applied Mathematics, 2014, vol. 2014, 1-7

Abstract:

Even though interest rates fluctuate randomly in the marketplace, many option-pricing models do not fully consider their stochastic nature owing to their generally limited impact on option prices. However, stochastic dynamics in stochastic interest rates may have a significant impact on option prices as we take account of issues of maturity, hedging, or stochastic volatility. In this paper, we derive a closed form solution for European options in Black-Scholes model with stochastic interest rate using Mellin transform techniques.

Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:hin:jnljam:759562

DOI: 10.1155/2014/759562

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