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Adaptive Risk Hedging for Call Options under Cox-Ingersoll-Ross Interest Rates
Department of Mathematics, University of Texas at Arlington, Arlington, USA
Department of Mathematics, University of Texas at Arlington, Arlington, USA
- 1 Department of Mathematics, University of Texas at Arlington, Arlington, USA
- 2 Department of Mathematics, University of Texas at Arlington, Arlington, USA
Journal of Mathematical Finance·Volume 10 (2020)·Pages 697–704·Published 10 October 2020·DOI10.4236/jmf.2020.104040
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Abstract
We present a solution to the problem posed by Zhang et al . [1] regarding Call Option price C T under linear investment hedging for the stochastic interest rate modeled by a CIR Process. A closed form representation for C T by expected value of the path-integral along a square functional of n -dimensional Ornstein-Uhlenbeck process is derived. The method is suitable for Monte-Carlo simulation and illustrated by an example.
KeywordsEuropean Call OptionLinear Stock Investment StrategyCox-Ingersoll-Ross ModelOrnstein-Uhlenbeck ProcessNumeraire and Martingale Measure
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