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Robust Static Super-Replication of Barrier Options

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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 su...
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  • 15 July 2009
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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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Price: $300.00
Pages: 209
Publisher: De Gruyter
Imprint: De Gruyter
Publication Date: 15 July 2009
ISBN: 9783110204681
Format: Hardcover
BISACs: MAT000000 MATHEMATICS / General, MAT003000 MATHEMATICS / Applied, MAT029000 MATHEMATICS / Probability & Statistics / General, MAT041000 MATHEMATICS / Numerical Analysis
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Jan H. Maruhn, UniCredit Markets & Investment Banking, Munich, Germany.