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Static replication of European standard dispersion options

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Listed:
  • Sébastien Bossu
  • Peter Carr
  • Andrew Papanicolaou

Abstract

Dispersion options may be replicated using vanilla basket calls whose basket weights span an n-dimensional continuum

Suggested Citation

  • Sébastien Bossu & Peter Carr & Andrew Papanicolaou, 2022. "Static replication of European standard dispersion options," Quantitative Finance, Taylor & Francis Journals, vol. 22(5), pages 799-811, May.
    • Handle: RePEc:taf:quantf:v:22:y:2022:i:5:p:799-811
    DOI: 10.1080/14697688.2022.2040743
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    References listed on IDEAS

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    1. Antoine Jacquier & Saad Slaoui, 2007. "Variance Dispersion and Correlation Swaps," Birkbeck Working Papers in Economics and Finance 0712, Birkbeck, Department of Economics, Mathematics & Statistics.
    2. Breeden, Douglas T & Litzenberger, Robert H, 1978. "Prices of State-contingent Claims Implicit in Option Prices," The Journal of Business, University of Chicago Press, vol. 51(4), pages 621-651, October.
    3. Pelsser, Antoon, 2003. "Pricing and hedging guaranteed annuity options via static option replication," Insurance: Mathematics and Economics, Elsevier, vol. 33(2), pages 283-296, October.
    4. Alexander Lipton, 2001. "Mathematical Methods for Foreign Exchange:A Financial Engineer's Approach," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number 4694, February.
    5. Baxter, Martin, 1998. "Hedging in Financial Markets," ASTIN Bulletin, Cambridge University Press, vol. 28(1), pages 5-16, May.
    6. Joost Driessen & Pascal J. Maenhout & Grigory Vilkov, 2009. "The Price of Correlation Risk: Evidence from Equity Options," Journal of Finance, American Finance Association, vol. 64(3), pages 1377-1406, June.
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    Cited by:

    1. Vikranth Lokeshwar Dhandapani & Shashi Jain, 2023. "Data-driven Approach for Static Hedging of Exchange Traded Options," Papers 2302.00728, arXiv.org, revised Jan 2024.
    2. Evgenii Vladimirov, 2023. "iCOS: Option-Implied COS Method," Papers 2309.00943, arXiv.org, revised Feb 2024.
    3. S'ebastien Bossu & St'ephane Cr'epey & Hoang-Dung Nguyen, 2024. "Spanning Multi-Asset Payoffs With ReLUs," Papers 2403.14231, arXiv.org.

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