A mixed fractional Vasicek model and pricing Bermuda option on zero-coupon bonds

Abstract

This paper considers the problem of pricing of Bermuda options on zero-coupon bond in which the dynamics of the interest rate model follows the mixed fractional Vasicek model. The strong convergence of the Euler discretization scheme for the mixed fractional Vasicek model is analysed. Specifically, we find an approximate formula for zero-coupon bond price. Numerical experiments are provided and compared for Bermuda-style call and put options with the Monte Carlo simulation approach.

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Correspondence to Farshid Mehrdoust.

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Mehrdoust, F., Najafi, A.R. & Samimi, H. A mixed fractional Vasicek model and pricing Bermuda option on zero-coupon bonds. Sādhanā 45, 58 (2020). https://doi.org/10.1007/s12046-020-1289-4

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Keywords

  • Bermuda option
  • mixed fractional Vasicek model
  • zero-coupon bond
  • Monte Carlo simulation