Static replication of barrier options: some general results

Leif B. G. Andersen, Jesper Andreasen and David Eliezer

Journal of Computational Finance

Abstract: ABSTRACT This paper presents a number of new theoretical results for the replication of barrier options through a static portfolio of European put and call options. Our results are valid for options with completely general knock-out/knock-in sets, and allow for time- and state-dependent volatility as well as discontinuous asset dynamics. We illustrate the theory with numerical examples and discuss practical implementation.

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