TITLE:
Adaptive Risk Hedging for Call Options under Cox-Ingersoll-Ross Interest Rates
AUTHORS:
Niloofar Ghorbani, Andrzej Korzeniowski
KEYWORDS:
European Call Option, Linear Stock Investment Strategy, Cox-Ingersoll-Ross Model, Ornstein-Uhlenbeck Process, Numeraire and Martingale Measure
JOURNAL NAME:
Journal of Mathematical Finance,
Vol.10 No.4,
November
25,
2020
ABSTRACT: We present a solution to the problem posed by Zhang et al. [1] regarding Call Option price CT under linear investment hedging for the stochastic interest rate modeled by a CIR Process. A closed form representation for CT 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.