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.
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Bibliographic InfoPaper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2000-112.
Date of creation: 2000
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Find related papers by JEL classification:
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
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