Barrier options and their static hedges: simple derivations and extensions
Author:
Rolf Poulsen a
| Affiliation: | a Department of Applied Mathematics and Statistics, Institute for Mathematical Sciences, University of Copenhagen, DK-2100, Denmark |
DOI:
10.1080/14697680600690331
Publication Frequency:
8 issues per year
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Abstract
We use a reflection result to give simple proofs of (well-known) valuation formulas and static hedge portfolio constructions for zero-rebate single-barrier options in the Black-Scholes model. We then illustrate how to extend the ideas to other model types giving (at least) easy-to-program numerical methods and other option types such as options with rebates, and double-barrier and lookback options.
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| Keywords: Barrier option; Static hedging |
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