Efficient Static Replication of European Options for Exponential Levy Models

Akihiko Takahashi and Akira Yamazaki
Additional contact information
Akihiko Takahashi: Faculty of Economics, University of Tokyo
Akira Yamazaki: Mizuho-DL Financial Technology Co., Ltd.

No CIRJE-F-513, CIRJE F-Series from CIRJE, Faculty of Economics, University of Tokyo

Abstract: This paper proposes a new method of static replication for European options and their portfolio. First a general approximation formula of efficient static replication is derived, which is based on and an extension of Carr and Chou [1997, 2002] and Carr and Wu [2002]. Then, the concrete procedure to implement our method with exponential Levy models is described by using examples such as plain vanilla, cash digital, asset digital and power options. Finally, numerical examples with the CGMY(Carr, Geman, Madan and Yor[2002]) model show that our replication scheme is efficient and effective in practice.

Pages: 30 pages
Date: 2007-09
References: Add references at CitEc
Citations: View citations in EconPapers (1)

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:tky:fseres:2007cf513

Access Statistics for this paper

More papers in CIRJE F-Series from CIRJE, Faculty of Economics, University of Tokyo Contact information at EDIRC.
Bibliographic data for series maintained by CIRJE administrative office ().