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The Illusions of Dynamic Replication

Emanuel Derman
Columbia University

Nassim Nicholas Taleb
NYU-Poly

April 15, 2005

Abstract:
While modern financial theory holds that options values are derived by dynamic replication, they can be correctly valued far more simply by long familiar static and actuarial arguments that combine stochastic price evolution with the no-arbitrage relation between cash and forward contracts.

Keywords: Option Pricing, Replication, Valuation,

JEL Classifications: G12, G13, N00

Working Paper Series

Date posted: May 09, 2005 ; Last revised: June 30, 2009

Suggested Citation

Derman, Emanuel and Taleb, Nassim Nicholas Nicholas, The Illusions of Dynamic Replication (April 15, 2005). Available at SSRN: http://ssrn.com/abstract=720581

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Contact Information

Emanuel Derman (Contact Author) Columbia University ( email ) 3022 Broadway New York, NY 10027 United States 212 854 9883 (Phone) HOME PAGE: www.ederman.com
Nassim Nicholas Taleb NYU-Poly ( email ) Brooklyn, NY 11201 United States

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