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

Author

Listed:
  • Eric Djeutcha

    (UMa - University of Maroua)

  • Jules Sadefo Kamdem

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

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, 2022. "Pricing for a vulnerable bull spread options using a mixed modified fractional Hull-White-Vasicek model," Post-Print hal-03675886, HAL.
    • Handle: RePEc:hal:journl:hal-03675886
    DOI: 10.1007/s10479-022-04808-y
    Note: View the original document on HAL open archive server: https://hal.science/hal-03675886
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    References listed on IDEAS

    as
    1. Stein, Elias M & Stein, Jeremy C, 1991. "Stock Price Distributions with Stochastic Volatility: An Analytic Approach," The Review of Financial Studies, Society for Financial Studies, vol. 4(4), pages 727-752.
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    Keywords

    Bull spread option; Hull-White-Vasicek model; Double Mellin transform;
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