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The Call Option Pricing Based on Investment Strategy with Stochastic Interest Rate
Affiliation School of Science, Donghua University, Shanghai, China
Affiliation School of Science, Donghua University, Shanghai, China
School of Electronic and Electrical Engineering, Shanghai University of Engineering Science, Shanghai, China
Affiliation School of Science, Donghua University, Shanghai, China
Affiliation School of Science, Donghua University, Shanghai, China
- 1 Affiliation School of Science, Donghua University, Shanghai, China
- 2 Affiliation School of Science, Donghua University, Shanghai, China
- 3 School of Electronic and Electrical Engineering, Shanghai University of Engineering Science, Shanghai, China
- 4 Affiliation School of Science, Donghua University, Shanghai, China
- 5 Affiliation School of Science, Donghua University, Shanghai, China
Journal of Mathematical Finance·Volume 08 (2018)·Pages 43–57·Published 18 January 2018·DOI10.4236/jmf.2018.81004
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Abstract
In this paper, the call option price is evaluated based on linear investment strategy in order to hedge the risk actively in stock market with stochastic interest rate. The Vasicek model is used to describe the structure of interest rates. The mathematical characterization is discussed for the unique no-arbitrage price associated with any attainable contingent claim. The appropriate numeraire (zero-coupon bond) and measures (T-forward measure) are chosen to simplify the calculations. Based on the designed linear investment strategy with stochastic interest rate, a novel option price approach is obtained under the T-forward measure.
KeywordsEurope Call OptionInvestment StrategyStochastic Interest RateVasicek ModelNumeraire and MeasuresT-Forward Measure
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