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Pricing perpetual timer option under the stochastic volatility model of Hull-White

Journal Article


Abstract


  • The valuation of perpetual timer options under the Hull–White stochastic volatility model is discussed here. By exploring the connection between the Hull–White model and the Bessel process and using time-change techniques, the triple joint distribution for the instantaneous volatility, the cumulative reciprocal volatility and the cumulative realized variance is obtained. An explicit analytical solution for the price of perpetual timer call options is derived as a Black–Scholes–Merton-type formula.

Authors


  •   Zhang, Jichao (external author)
  •   Lu, Xiaoping
  •   Han, Yuecai (external author)

Publication Date


  • 2017

Citation


  • Zhang, J., Lu, X. & Han, Y. (2017). Pricing perpetual timer option under the stochastic volatility model of Hull-White. Australia and New Zealand Industrial and Applied Mathematics (ANZIAM) Journal, Online First 1-11.

Scopus Eid


  • 2-s2.0-85019249788

Ro Metadata Url


  • http://ro.uow.edu.au/eispapers1/202

Number Of Pages


  • 10

Start Page


  • 1

End Page


  • 11

Volume


  • Online First

Place Of Publication


  • United Kingdom

Abstract


  • The valuation of perpetual timer options under the Hull–White stochastic volatility model is discussed here. By exploring the connection between the Hull–White model and the Bessel process and using time-change techniques, the triple joint distribution for the instantaneous volatility, the cumulative reciprocal volatility and the cumulative realized variance is obtained. An explicit analytical solution for the price of perpetual timer call options is derived as a Black–Scholes–Merton-type formula.

Authors


  •   Zhang, Jichao (external author)
  •   Lu, Xiaoping
  •   Han, Yuecai (external author)

Publication Date


  • 2017

Citation


  • Zhang, J., Lu, X. & Han, Y. (2017). Pricing perpetual timer option under the stochastic volatility model of Hull-White. Australia and New Zealand Industrial and Applied Mathematics (ANZIAM) Journal, Online First 1-11.

Scopus Eid


  • 2-s2.0-85019249788

Ro Metadata Url


  • http://ro.uow.edu.au/eispapers1/202

Number Of Pages


  • 10

Start Page


  • 1

End Page


  • 11

Volume


  • Online First

Place Of Publication


  • United Kingdom