Pricing for options in a mixed fractional Hull–White interest rate model

Jian Pan and Xiangying Zhou
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Jian Pan: College of Mathematics and Computer Science, Gannan Normal University, Ganzhou Jiangxi, P. R. China
Xiangying Zhou: College of Mathematics and Computer Science, Gannan Normal University, Ganzhou Jiangxi, P. R. China

International Journal of Financial Engineering (IJFE), 2017, vol. 04, issue 01, 1-15

Abstract: In this paper, we present a pricing model for European options in a mixed fractional Hull–White interest rate model. By using the variable transform techniques and mathematical physics methods, we derive closed-form pricing formulas for this pricing problem, which are the main contribution of this paper and expand the relevant literature’s conclusions. Moreover, we provide numerical examples to illustrate the effects of main parameters of the mixed fractional interest rate model on the option price. Numerical results show that the long memory property of interest rates plays an important role in determining the option price and cannot be neglected in option pricing.

Keywords: Mixed fractional Hull–White interest rate model; zero-coupon bond; mathematical physics methods; option pricing (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (2)

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DOI: 10.1142/S2424786317500116

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