A fractional Hull-White model (Q817076)

The fractional Hull-White model for the interest \(r_t\) of the form \[ dr_t=\bigl(b(t)-a(t)r_t\bigr)dt+\sigma(t)dB_t,\qquad 0\leq t \leq T,\tag{1} \] where \(a(t),b(t),\sigma(t)\) are deterministic continuous functions and \(B_t\) is a fractional Brownian motion of Hurst index \(H\) \((0< H<1)\) defined by \(B_t=\int^t_0 (t-s)^{H-1/2}\,dW_s\) and \(W_t\) is a standard Brownian motion, is considered. The author uses the approximate model and gives the solution of this model. The solution of (1) is obtained by convergence. Model (1) is very useful in practice of financial markets.