Pricing bond options under a Markovian regime-switching Hull-White model

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• 作者：Yang Shen^b ; ^{skyshen87@gmail.com} ; Tak Kuen Siu^a ; ^b ; ^{ktksiu2005@gmail.com}
• 关键词：Regime-switching ; Hull&ndash ; White model ; Forward measures ; Bond options ; Inverse Fourier transform
• 刊名：Economic Modelling
• 出版年：2013
• 出版时间：January, 2013
• 年：2013
• 卷：30
• 期：Complete
• 页码：933-940
• 全文大小：780 K

文摘

In this paper, we investigate the valuation of bond options under a Markovian regime-switching Hull-White model, where both the mean-reverting level and the volatility of the interest rate are modulated by a continuous-time, finite-state Markov chain. Using techniques of measure changes and the inverse Fourier transform, we obtain an integral representation for the pricing formula of a standard European option on a zero-coupon bond. Numerical results for the prices and implied volatilities of bond options arising in our model are given in a two-regime case.