Robust Static Super-Replication of Barrier Options

Jan H. Maruhn

ISBN 10: 3110204681 / ISBN 13: 9783110204681

Published by De Gruyter, DE, 2009

About this Item

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.

Seller Inventory # LU-9783110204681

Bibliographic Details

• Title: Robust Static Super-Replication of Barrier Options
• Publisher: De Gruyter, DE
• Publication Date: 2009
• Language: English
• ISBN 10: 3110204681
• ISBN 13: 9783110204681
• Binding: Hardback
• Edition: 1st.
• Condition: New
• Dimensions: 7W x 0.5H x 10D inches 7 inches width by 0.5 inches height by 10 inches depth
• Weight: 543 grams

About this title

Synopsis

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.

About the Author

Jan H. Maruhn, UniCredit Markets & Investment Banking, Munich, Germany.