Author(s)

Xin Zhang¹, Huisheng Shu^1*, Xiu Kan^2*, Yingyi Fang¹, Zhiwei Zheng¹

¹Affiliation School of Science, Donghua University, Shanghai, China.
²School of Electronic and Electrical Engineering, Shanghai University of Engineering Science, Shanghai, China.

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.

Europe Call Option, Investment Strategy, Stochastic Interest Rate, Vasicek Model, Numeraire and Measures, T-Forward Measure

Zhang, X. , Shu, H. , Kan, X. , Fang, Y. and Zheng, Z. (2018) The Call Option Pricing Based on Investment Strategy with Stochastic Interest Rate. Journal of Mathematical Finance, 8, 43-57. doi: 10.4236/jmf.2018.81004.