Pricing an Asset-Or-Nothing Call Option using a Mixed Fractional Hull-White-Vasicek with stochastic volatility and interest rate

Eric Djeutcha and Jules Sadefo Kamdem ()
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Eric Djeutcha: UMa - University of Maroua
Jules Sadefo Kamdem: MRE - Montpellier Recherche en Economie - UM - Université de Montpellier

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Abstract: In this paper, we present a pricing model for an Asset-or-Nothing call option under the mixed modified fractional Hull-White-Vasicek(MMFHWV) model, which incorporates stochastic volatility and stochastic interest rates. Our results show that the option value decreases as α increases and converges to underlying asset value as α decreases.We employ the double mellin transform to obtain the analytical solutions. Furthermore, we use the Monte Carlo approach to estimate the option value invarious scenarios of α, providing a robust and efficient method to price vulnerable options. In particular, our contribution significantly expands the existing literature on vulnerable options, providing new insights and a more comprehensive understanding of these complex financial instruments.

Keywords: Asset or-nothing call option; Hull-White-Vasicek model; Double Mellin transform (search for similar items in EconPapers)
Date: 2025
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Published in Annals of Operations Research, In press

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05293768

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