Proactive hedging option is an exotic European stock option designed for hedgers. Such option requires option holders to buy in (or sell out) the underlying asset (stock) and allows them to adjust the holdings of the underlying asset per its price changes within an option period. The proactive hedging option is an attractive choice for hedgers because its price is lower than that of classical options and because it completely hedges the risk of exposure for option holders. In this study, the underlying asset price movement is assumed to follow geometric fractional Brownian motion. The pricing formula for proactive hedging call options is derived with a linear position strategy by applying the risk-neutral evaluation principle. We use simulations to confirm that the price of this exotic option is always no more than that of the classical European option under the same parameters.
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