Pricing for a vulnerable bull spread options using a mixed modified fractional Hull–White–Vasicek model

Eric Djeutcha () and Jules Sadefo Kamdem
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Eric Djeutcha: University of Maroua

Annals of Operations Research, 2024, vol. 334, issue 1, No 5, 131 pages

Abstract: Abstract In this paper, in order to serve credit risk management, we introduce a pricing model for a vulnerable Bull Spread options in a Mixed Modified Fractional Hull-White-Vasicek stochastic volatility and stochastic interest rate model. We use Milstein scheme to find the sample paths of asset price and its volatility, and the sample paths of interest rates of asset price movement. We use the double Mellin transform to obtain an analytical vulnerable bull spread call option formula and an analytical vulnerable bull spread put option formula under fractional stochastic volatility and fractional stochastic interest rates.

Keywords: Bull spread option; Hull–White–Vasicek model; Double Mellin transform; 60G22; 60G18 (search for similar items in EconPapers)
Date: 2024
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Working Paper: Pricing for a vulnerable bull spread options using a mixed modified fractional Hull-White-Vasicek model (2022)
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DOI: 10.1007/s10479-022-04808-y

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