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

Authors

Jichao Zhang, Jilin University
Xiaoping Lu, University of WollongongFollow
Yuecai Han, Jilin University

RIS ID

114122

Publication Details

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, 58 (3-4), 406-416.

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.