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Semi-Static Hedging Strategies For Exotic Options

In: Alternative Investments And Strategies

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  • HANSJÖRG ALBRECHER

    (Institute of Actuarial Science, University of Lausanne, Quartier UNIL-Dorigny, Bâtiment Extranef, 1015 Lausanne, Switzerland)

  • PHILIPP MAYER

    (Department of Mathematics, Graz University of Technology, Steyrergasse 30, 8010 Graz, Austria)

Abstract

In this chapter, we give a survey of results for semi-static hedging strategies for exotic options under different model assumptions and also in a model-independent framework. Semi-static hedging strategies consist of rebalancing the underlying portfolio only at certain pre-specified timepoints during the lifetime of the hedged derivative, as opposed to classical dynamic hedging, where adjustments have to be made continuously in time. In many market situations (and in particular in times of limited liquidity), this alternative approach to the hedging problem is quite useful and has become an increasingly popular research topic over the last years.We summarize the results on barrier options as well as strongly path-dependent options such as Asian or lookback options. Finally, it is shown how perfect semi-static hedging strategies for discretely observed options can be developed in quite general Markov-type models.

Suggested Citation

  • Hansjörg Albrecher & Philipp Mayer, 2010. "Semi-Static Hedging Strategies For Exotic Options," World Scientific Book Chapters, in: Rüdiger Kiesel & Matthias Scherer & Rudi Zagst (ed.), Alternative Investments And Strategies, chapter 14, pages 345-373, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789814280112_0014
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    1. Philipp Mayer & Natalie Packham & Wolfgang Schmidt, 2015. "Static hedging under maturity mismatch," Finance and Stochastics, Springer, vol. 19(3), pages 509-539, July.

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