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

Authors

  • Jichao Zhang Jilin University
  • Xiaoping Lu University of Wollongong
  • Yuecai Han Jilin University

DOI:

https://doi.org/10.21914/anziamj.v58i0.11281

Keywords:

timer option, stochastic volatility, Bessel process.

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. doi:10.1017/S1446181117000177

Author Biographies

Jichao Zhang, Jilin University

School of Mathematics

Xiaoping Lu, University of Wollongong

School of Mathematics and Applied Statistics

Yuecai Han, Jilin University

School of Mathematics

Published

2017-07-20

Issue

Section

ANZIAM-ZPAMS Joint Meeting