Static Replication of Forward-Start Claims and Realized Variance Swaps

Jan Baldeaux and Marek Rutkowski

Applied Mathematical Finance, 2010, vol. 17, issue 2, 99-131

Abstract: The goal of this work is to examine the static replication of path-dependent derivatives such as realized variance swaps, using more standard products such as forward-start binary (i.e. digital) double calls and puts. We first examine, following Carr and Madan (2002), the static replication of path-independent claims with continuous and discontinuous payoff functions. Subsequently, the static replication of forward-start claims with payoffs given by a bivariate function of finite variation is examined. We postulate that certain forward-start binary (or barrier) options are traded. The work concludes by an application of our general results to the static hedging of a realized variance swap with forward-start binary (or barrier) options.

Keywords: Static replication; realized variance swap; binary option; barrier option (search for similar items in EconPapers)
Date: 2010
References: View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.tandfonline.com/doi/abs/10.1080/13504860903075621 (text/html)
Access to full text is restricted to subscribers.

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:taf:apmtfi:v:17:y:2010:i:2:p:99-131

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAMF20

DOI: 10.1080/13504860903075621

Access Statistics for this article

Applied Mathematical Finance is currently edited by Professor Ben Hambly and Christoph Reisinger

More articles in Applied Mathematical Finance from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().