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

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.

FARSHID MEHRDOUST¹ ALI REZA NAJAFI¹ HOSSEIN SAMIMI²

1. Department of Applied Mathematics, Faculty of Mathematical Sciences, University of Guilan, PO Box: 41938-1914, Rasht, Iran
2. Department of Statistics, Faculty of Mathematical Sciences, University of Guilan, PO Box: 41938-1914, Rasht, Iran

Published

February 2020

Manuscript received

10 May 2019

Manuscript revised

20 December 2019

Accepted

27 December 2019

Final version published online

26 February 2020