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

Author

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  • Eric Djeutcha

    (University of Maroua)

  • Jules Sadefo Kamdem

    (University of Monpellier)

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.

Suggested Citation

  • Eric Djeutcha & Jules Sadefo Kamdem, 2024. "Pricing for a vulnerable bull spread options using a mixed modified fractional Hull–White–Vasicek model," Annals of Operations Research, Springer, vol. 334(1), pages 101-131, March.
    • Handle: RePEc:spr:annopr:v:334:y:2024:i:1:d:10.1007_s10479-022-04808-y
    DOI: 10.1007/s10479-022-04808-y
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