Static Replication of Barrier Options: Some General Results
Leif B. G. Andersen
Bank of America Merrill Lynch
Danske Bank - Danske Markets
David A. Eliezer
General Reinsurance Financial Products in New York
This paper presents a number of new theoretical results for replication of barrier options through a static portfolio of European put and call options. Our results are valid for options with completely general knock-out/knock-in sets, and allow for time- and state-dependent volatility as well as discontinuous asset dynamics. We illustrate the theory with numerical examples and discuss the practical implementation.
Number of Pages in PDF File: 25
JEL Classification: G12, G13working papers series
Date posted: May 19, 2000
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