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

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Listed:
  • Eric Djeutcha

    (UMa - University of Maroua)

  • Jules Sadefo Kamdem

    (MRE - Montpellier Recherche en Economie - UM - Université de Montpellier)

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.

Suggested Citation

  • Eric Djeutcha & Jules Sadefo Kamdem, 2025. "Pricing an Asset-Or-Nothing Call Option using a Mixed Fractional Hull-White-Vasicek with stochastic volatility and interest rate," Post-Print hal-05293768, HAL.
    • Handle: RePEc:hal:journl:hal-05293768
    as

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