SEMI-STATIC HEDGING STRATEGIES FOR EXOTIC OPTIONS

Hansjörg Albrecher and Philipp Mayer
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Hansjörg Albrecher: Institute of Actuarial Science, University of Lausanne, Quartier UNIL-Dorigny, Bâtiment Extranef, 1015 Lausanne, Switzerland
Philipp Mayer: Department of Mathematics, Graz University of Technology, Steyrergasse 30, 8010 Graz, Austria

Chapter 14 in Alternative Investments and Strategies, 2010, pp 345-373 from World Scientific Publishing Co. Pte. Ltd.

Abstract: AbstractIn this chapter, we give a survey of results for semi-static hedging strategies for exotic options under different model assumptions and also in a model-independent framework. Semi-static hedging strategies consist of rebalancing the underlying portfolio only at certain pre-specified timepoints during the lifetime of the hedged derivative, as opposed to classical dynamic hedging, where adjustments have to be made continuously in time. In many market situations (and in particular in times of limited liquidity), this alternative approach to the hedging problem is quite useful and has become an increasingly popular research topic over the last years.We summarize the results on barrier options as well as strongly path-dependent options such as Asian or lookback options. Finally, it is shown how perfect semi-static hedging strategies for discretely observed options can be developed in quite general Markov-type models.

Keywords: Alternative Investments; Portfolio Selection; Trading Strategy; Product Innovations; CPPI; Portfolio Optimization; Portfolio Insurance (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (1)

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