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Static versus dynamic hedges: an empirical comparison for barrier options

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  • Bernd Engelmann

    ()

  • Matthias Fengler

    ()

  • Morten Nalholm

    ()

  • Peter Schwendner

    ()

Abstract

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File URL: http://hdl.handle.net/10.1007/s11147-007-9010-x
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Bibliographic Info

Article provided by Springer in its journal Review of Derivatives Research.

Volume (Year): 9 (2006)
Issue (Month): 3 (November)
Pages: 239-264

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Handle: RePEc:kap:revdev:v:9:y:2006:i:3:p:239-264

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Web page: http://www.springerlink.com/link.asp?id=102989

Related research

Keywords: Barrier options; Static hedging; Dynamic hedging; Local volatility model; Empirical hedging analysis; G13;

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References

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  1. Hentschel, Ludger, 2003. "Errors in Implied Volatility Estimation," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 38(04), pages 779-810, December.
  2. Rolf Poulsen, 2006. "Barrier options and their static hedges: simple derivations and extensions," Quantitative Finance, Taylor & Francis Journals, vol. 6(4), pages 327-335.
  3. S. G. Kou, 2002. "A Jump-Diffusion Model for Option Pricing," Management Science, INFORMS, vol. 48(8), pages 1086-1101, August.
  4. Bjørn Eraker & Michael Johannes & Nicholas Polson, 2003. "The Impact of Jumps in Volatility and Returns," Journal of Finance, American Finance Association, vol. 58(3), pages 1269-1300, 06.
  5. Geske, Robert, 1979. "The valuation of compound options," Journal of Financial Economics, Elsevier, vol. 7(1), pages 63-81, March.
  6. Mark Rubinstein., 1994. "Implied Binomial Trees," Research Program in Finance Working Papers RPF-232, University of California at Berkeley.
  7. Hull, John C & White, Alan D, 1987. " The Pricing of Options on Assets with Stochastic Volatilities," Journal of Finance, American Finance Association, vol. 42(2), pages 281-300, June.
  8. Peter Carr & Katrina Ellis & Vishal Gupta, 1998. "Static Hedging of Exotic Options," Journal of Finance, American Finance Association, vol. 53(3), pages 1165-1190, 06.
  9. Bates, David S., 2000. "Post-'87 crash fears in the S&P 500 futures option market," Journal of Econometrics, Elsevier, vol. 94(1-2), pages 181-238.
  10. Fengler, Matthias R. & Härdle, Wolfgang & Mammen, Enno, 2003. "Implied volatility string dynamics," SFB 373 Discussion Papers 2003,54, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  11. Garcia, Rene & Gencay, Ramazan, 2000. "Pricing and hedging derivative securities with neural networks and a homogeneity hint," Journal of Econometrics, Elsevier, vol. 94(1-2), pages 93-115.
  12. Galai, Dan, 1983. "The Components of the Return from Hedging Options against Stocks," The Journal of Business, University of Chicago Press, vol. 56(1), pages 45-54, January.
  13. Matthias Fengler, 2009. "Arbitrage-free smoothing of the implied volatility surface," Quantitative Finance, Taylor & Francis Journals, vol. 9(4), pages 417-428.
  14. Bates, David S, 1996. "Jumps and Stochastic Volatility: Exchange Rate Processes Implicit in Deutsche Mark Options," Review of Financial Studies, Society for Financial Studies, vol. 9(1), pages 69-107.
  15. Rong Fan & Anurag Gupta & Peter Ritchken, 2003. "Hedging in the Possible Presence of Unspanned Stochastic Volatility: Evidence from Swaption Markets," Journal of Finance, American Finance Association, vol. 58(5), pages 2219-2248, October.
  16. Marco Avellaneda & Craig Friedman & Richard Holmes & Dominick Samperi, 1997. "Calibrating volatility surfaces via relative-entropy minimization," Applied Mathematical Finance, Taylor & Francis Journals, vol. 4(1), pages 37-64.
  17. George Skiadopoulos & Stewart Hodges & Les Clewlow, 2000. "The Dynamics of the S&P 500 Implied Volatility Surface," Review of Derivatives Research, Springer, vol. 3(3), pages 263-282, October.
  18. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
  19. Fengler, Matthias R. & Härdle, Wolfgang K. & Villa, Christophe, 2001. "The dynamics of implied volatilities: A common principal components approach," SFB 373 Discussion Papers 2001,38, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  20. Cox, John C. & Ross, Stephen A., 1976. "The valuation of options for alternative stochastic processes," Journal of Financial Economics, Elsevier, vol. 3(1-2), pages 145-166.
  21. Stein, Elias M & Stein, Jeremy C, 1991. "Stock Price Distributions with Stochastic Volatility: An Analytic Approach," Review of Financial Studies, Society for Financial Studies, vol. 4(4), pages 727-52.
  22. Haitao Li & Feng Zhao, 2006. "Unspanned Stochastic Volatility: Evidence from Hedging Interest Rate Derivatives," Journal of Finance, American Finance Association, vol. 61(1), pages 341-378, 02.
  23. Hull, John & Suo, Wulin, 2002. "A Methodology for Assessing Model Risk and its Application to the Implied Volatility Function Model," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 37(02), pages 297-318, June.
  24. Bakshi, Gurdip & Cao, Charles & Chen, Zhiwu, 2000. "Pricing and hedging long-term options," Journal of Econometrics, Elsevier, vol. 94(1-2), pages 277-318.
  25. Rubinstein, Mark, 1994. " Implied Binomial Trees," Journal of Finance, American Finance Association, vol. 49(3), pages 771-818, July.
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Citations

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Cited by:
  1. Thorsten Rheinl\"ander & Michael Schmutz, 2012. "Quasi self-dual exponential L\'evy processes," Papers 1201.5132, arXiv.org.
  2. Johannes Siven & Rolf Poulsen, 2009. "Auto-static for the people: risk-minimizing hedges of barrier options," Review of Derivatives Research, Springer, vol. 12(3), pages 193-211, October.

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