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The Illusions of Dynamic Replication

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

5 Pages Posted: 9 May 2005 Last revised: 16 Nov 2012

Emanuel Derman

Columbia University

Nassim Nicholas Taleb

NYU-Tandon School of Engineering

Date Written: 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 Classification: G12, G13, N00

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: https://ssrn.com/abstract=720581

Emanuel Derman (Contact Author)

Columbia University ( email )

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New York, NY 10027
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212 854 9883 (Phone)

HOME PAGE: www.ederman.com

Nassim Nicholas Taleb

NYU-Tandon School of Engineering ( email )

Bobst Library, E-resource Acquisitions
20 Cooper Square 3rd Floor
New York, NY 10003-711
United States

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