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Adaptive Risk Hedging for Call Options under Cox-Ingersoll-Ross Interest Rates

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Document pages: 8 pages

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.

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