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Put Options with Linear Investment for Hull-White 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 11 (2021)·Pages 152–162·Published 3 February 2021·DOI10.4236/jmf.2021.111007
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Abstract
We derive a Put Option price associated with selling strategy of the underlying security in a random interest rate environment. This extends Put Option pricing under linear investment strategy from the Black-Scholes setting to Hull-White stochastic interest rate model. As an application, Call Option price for the linear investment strategy in the Hull-White model is established. Our results address recent emergence of developing dynamic investment strategies for the purpose of reducing the investor risk exposure associated with European-type options.
KeywordsEuropean Put OptionLinear Stock Investment StrategyZero-Coupon BondChange of NumeraireT-Forward MeasureHull-White Model
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