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The Illusions of Dynamic Replication

Emanuel Derman

Columbia University

Nassim Nicholas Taleb

Independent Researcher; NYU-Poly Institute; New England Complex Systems Institute

April 15, 2005

Quantitative Finance, Vol. 5, No. 4, pp. 323-326, August 2005

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.

Number of Pages in PDF File: 5

Keywords: Option Pricing, Replication, Valuation,

JEL Classification: G12, G13, N00

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Date posted: May 9, 2005 ; Last revised: November 16, 2012

Suggested Citation

Derman, Emanuel and Taleb, Nassim Nicholas, The Illusions of Dynamic Replication (April 15, 2005). Quantitative Finance, Vol. 5, No. 4, pp. 323-326, August 2005. Available at SSRN: http://ssrn.com/abstract=720581

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
Independent Researcher ( email )
NYU-Poly Institute ( email )
Bobst Library, E-resource Acquisitions
20 Cooper Square 3rd Floor
New York, NY 10003-711
United States
New England Complex Systems Institute ( email )
24 Mt. Auburn St.
Cambridge, MA 02138
United States
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