TITLE:
Put Options with Linear Investment for Hull-White Interest Rates
AUTHORS:
Andrzej Korzeniowski, Niloofar Ghorbani
KEYWORDS:
European Put Option, Linear Stock Investment Strategy, Zero-Coupon Bond, Change of Numeraire, T-Forward Measure, Hull-White Model
JOURNAL NAME:
Journal of Mathematical Finance,
Vol.11 No.1,
February
26,
2021
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.