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Journal of Applied Mathematics
Volume 2014, Article ID 759562, 7 pages
Research Article

Mellin Transform Method for European Option Pricing with Hull-White Stochastic Interest Rate

Department of Mathematical Science, Seoul National University, Seoul 151-747, Republic of Korea

Received 5 May 2014; Accepted 9 September 2014; Published 16 October 2014

Academic Editor: Li Ma

Copyright © 2014 Ji-Hun Yoon. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.


Even though interest rates fluctuate randomly in the marketplace, many option-pricing models do not fully consider their stochastic nature owing to their generally limited impact on option prices. However, stochastic dynamics in stochastic interest rates may have a significant impact on option prices as we take account of issues of maturity, hedging, or stochastic volatility. In this paper, we derive a closed form solution for European options in Black-Scholes model with stochastic interest rate using Mellin transform techniques.