Static Replication of Barrier Options: Some General Results

25 Pages Posted: 19 May 2000

See all articles by Leif B. G. Andersen

Leif B. G. Andersen

Bank of America Merrill Lynch

Jesper Andreasen

Saxo Bank

David A. Eliezer

General Reinsurance Financial Products in New York

Date Written: February 2000

Abstract

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.

JEL Classification: G12, G13

Suggested Citation

Andersen, Leif B.G. and Andreasen, Jesper and Eliezer, David A., Static Replication of Barrier Options: Some General Results (February 2000). Available at SSRN: https://ssrn.com/abstract=220010 or http://dx.doi.org/10.2139/ssrn.220010

Leif B.G. Andersen (Contact Author)

Bank of America Merrill Lynch ( email )

One Bryant Park
New York, NY 10036
United States
646-855-1835 (Phone)

Jesper Andreasen

Saxo Bank ( email )

Philip Heymans Alle 15
Hellerup, 2900
Denmark

David A. Eliezer

General Reinsurance Financial Products in New York ( email )

Rockefeller Center
630 Fifth Avenue, Suite 450 Research Department
New York, NY 10111
United States
212-541-2576 (Phone)
212-307-8980 (Fax)

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