Hedging Double Barriers with Singles
AbstractDouble barrier options provide risk managers with good-deal flexibility in tailoring portfolio returns.Their hedges offer full protection only if unwound along the barriers.This work provides non-dynamic hedges that project the risk of double barriers on to single barriers.Non-dynamic hedges overcome bulky transaction costs due to dynamic hedging trades.That projection implies that two single barriers written on the double barrier corridor extrema are often a comfortable, even if imperfect, hedge.Such a hedge is simple and gives automatic protection along the barriers.Automatic protection overcomes trading issues along the barriers.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2000-112.
Date of creation: 2000
Date of revision:
Contact details of provider:
Web page: http://center.uvt.nl
Find related papers by JEL classification:
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Hélyette Geman & Marc Yor, 1996. "Pricing And Hedging Double-Barrier Options: A Probabilistic Approach," Mathematical Finance, Wiley Blackwell, vol. 6(4), pages 365-378.
- Naoto Kunitomo & Masayuki Ikeda, 1992. "Pricing Options With Curved Boundaries," Mathematical Finance, Wiley Blackwell, vol. 2(4), pages 275-298.
- 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.
- Dupont, Dominique Y., 2001. "Hedging Barrier Options: Current Methods and Alternatives," Economics Series 103, Institute for Advanced Studies.
- Sheldon Lin, X., 1998. "Double barrier hitting time distributions with applications to exotic options," Insurance: Mathematics and Economics, Elsevier, vol. 23(1), pages 45-58, October.
- Antoon Pelsser, 1997.
"Pricing Double Barrier Options: An Analytical Approach,"
Tinbergen Institute Discussion Papers
97-015/2, Tinbergen Institute.
- Antoon Pelsser, . "Pricing Double Barrier Options: An Analytical Approach," Computing in Economics and Finance 1997 130, Society for Computational Economics.
- 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.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Richard Broekman).
If references are entirely missing, you can add them using this form.