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

Author

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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)

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.

Suggested Citation

  • Jian Pan & Xiangying Zhou, 2017. "Pricing for options in a mixed fractional Hull–White interest rate model," International Journal of Financial Engineering (IJFE), World Scientific Publishing Co. Pte. Ltd., vol. 4(01), pages 1-15, March.
    • Handle: RePEc:wsi:ijfexx:v:04:y:2017:i:01:n:s2424786317500116
    DOI: 10.1142/S2424786317500116
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    References listed on IDEAS

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    2. Marc Mukendi Mpanda & Safari Mukeru & Mmboniseni Mulaudzi, 2020. "Generalisation of Fractional-Cox-Ingersoll-Ross Process," Papers 2008.07798, arXiv.org, revised Jul 2022.

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