|
|
 Login |
|
|
|
Volume 10/Number 3, Spring 2007 Research Papers Cost-optimal static super-replication of barrier options: an optimization approach Alexander Giese
HypoVereinsbank, UniCredit Markets and Investment Banking, Quantitative Research, Arabellastr. 12, D-81925 Munich, Germany; email: alexander.giese@hvb.de Jan Maruhn
University of Trier, Department of Mathematics, D-54286 Trier, Germany; email: maruhn@uni-trier.de Exact static hedging results for barrier options are usually based on unrealistic assumptions such as the availability of an infinite number of standard options or zero cost of carry. If these assumptions are dropped, static hedges may lead to large losses close to maturity of the barrier option. To avoid this, we analyze the well-known concept of super-replication in the context of static hedging both theoretically and numerically and apply it to the case of hedging barrier options in a stochastic volatility context. Numerical results show that our approach leads to very attractive static hedging strategies which super-replicate the barrier options payoff, match the delta and vega of the target option and only consist of a handful of liquidly traded standard options. Surprisingly, the identified cost-optimal static super-replication portfolios are only marginally more expensive than the barrier option itself.
|
|
|
|
| Subscribe to The Journal of Computational Finance and every quarter you will receive: |
Innovative research papers written by leading academics in the field
Detailed insight into numerical and computational techniques in the pricing, hedging and risk management of financial instruments
Online access to all research papers published in the history of the journal giving you access to a complete library of papers on computational finance
Email Alerts notifying you when new issues are posted
To subscribe now click here. |
|
|
What to do if you do not know your username and password:
If you are a The Journal of Computational Finance subscriber, click here and we will email you straight away with your username and password.
What to do if you are not a The Journal of Computational Finance subscriber:
If you are not a The Journal of Computational Finance subscriber, click here to subscribe now or click here for a FREE sample.
Further information about The Journal of Computational Finance:
Are you a new user? Click here for our guide.
Are you having problems logging in to this website? Please click here for help. |
|
|
 |
 |
|
|
www.thejournalofcomputationalfinance.com |
|
|
|
|
|
|
|
|
|
|
|
|
|
The Risk Books and Journals group on 
is where editors, authors and readers can launch discussions about published and forthcoming books.
Click here to read these discussions and become part of the Risk Books and Journals group. |
|
|
