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Static Replication of Forward-Start Claims and Realized Variance Swaps


  • Jan Baldeaux
  • Marek Rutkowski


The goal of this work is to examine the static replication of path-dependent derivatives such as realized variance swaps, using more standard products such as forward-start binary (i.e. digital) double calls and puts. We first examine, following Carr and Madan (2002), the static replication of path-independent claims with continuous and discontinuous payoff functions. Subsequently, the static replication of forward-start claims with payoffs given by a bivariate function of finite variation is examined. We postulate that certain forward-start binary (or barrier) options are traded. The work concludes by an application of our general results to the static hedging of a realized variance swap with forward-start binary (or barrier) options.

Suggested Citation

  • Jan Baldeaux & Marek Rutkowski, 2010. "Static Replication of Forward-Start Claims and Realized Variance Swaps," Applied Mathematical Finance, Taylor & Francis Journals, vol. 17(2), pages 99-131.
  • Handle: RePEc:taf:apmtfi:v:17:y:2010:i:2:p:99-131
    DOI: 10.1080/13504860903075621

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    Cited by:

    1. Yukihiro Tsuzuki, 2012. "On the Optimal Super- and Sub-Hedging Strategies," CARF F-Series CARF-F-300, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo, revised Aug 2013.
    2. Michael Schmutz & Thomas Z├╝rcher, 2014. "Static Hedging with Traffic Light Options," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 34(7), pages 690-702, July.


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