Static Hedging of Barrier Options under General Asset Dynamics: Unification and Application
AbstractA new method for static hedging of barrier options under general asset dynamics is introduced. The method unifies previous approaches and nests their extensions. Using a finite set of hedge instruments the method is directly implementable and it is shown how to operationalize the hedge in a jump-diffusion model with correlated stochastic volatility. The performance of the hedge is thoroughly studied and generic sources of hedge errors are addressed.
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Bibliographic InfoPaper provided by University of Copenhagen. Department of Economics. Finance Research Unit in its series FRU Working Papers with number 2005/08.
Length: 30 pages
Date of creation: Nov 2005
Date of revision:
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