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

Ji-Hun Yoon

Journal of Applied Mathematics, 2014, vol. 2014, issue 1

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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https://doi.org/10.1155/2014/759562

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Persistent link: https://EconPapers.repec.org/RePEc:wly:jnljam:v:2014:y:2014:i:1:n:759562

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