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  • Open Daily: 10am - 10pm
    Alley-side Pickup: 10am - 7pm

    3038 Hennepin Ave Minneapolis, MN
    612-822-4611

Open Daily: 10am - 10pm | Alley-side Pickup: 10am - 7pm
3038 Hennepin Ave Minneapolis, MN
612-822-4611
Robust Static Super-Replication of Barrier Options

Robust Static Super-Replication of Barrier Options

Maruhn, Jan H.

Hardcover

Series: Radon Computational and Applied Mathematics, Book 7

CalculusGeneral Mathematics

ISBN10: 3110204681
ISBN13: 9783110204681
Publisher: De Gruyter
Published: Jul 15 2009
Pages: 209
Weight: 1.19
Height: 0.50 Width: 6.69 Depth: 9.61
Language: English

Static hedge portfolios for barrier options are very sensitive with respect to changes of the volatility surface. To prevent potentially significant hedging losses this book develops a static super-replication strategy with market-typical robustness against volatility, skew and liquidity risk as well as model errors. Empirical results and various numerical examples confirm that the static superhedge successfully eliminates the risk of a changing volatility surface. Combined with associated sub-replication strategies this leads to robust price bounds for barrier options which are also relevant in the context of dynamic hedging. The mathematical techniques used to prove appropriate existence, duality and convergence results range from financial mathematics, stochastic and semi-infinite optimization, convex analysis and partial differential equations to semidefinite programming.

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