Dear colleagues,
On Monday, May 28, 2000, 16.00-17.30, SZ VI, IHS, Stumpergasse 56, 1060
there will be a talk by
Dominique Y. Dupont
at EURANDOM and
Board of Governors, Washington
on
"Hedging Barrier Options: Current Methods and Alternatives"
Abstract
This paper applies to the static hedge of barrier options a technique,
mean-square hedging, designed to minimize the size of the hedging error
when perfect replication is not possible. It introduces an extension of
this technique which preserves the computational efficiency of mean-
square hedging while being consistent with any prior pricing model
or with any linear constraint on the hedging residual. This improves
on current static hedging methods, which aim at exactly replicating
barrier options and rely on strong assumptions on the availability of
traded options with certain strikes or maturities, or on the distribution
of the underlying asset.
JEL Classification: G12, G13, C63.
Key words: Barrier Options, Static Hedging, Mean-Square Hedging
best
gabe
______________________________________________________________
Gabriel S. LEE
Institute for Advanced Studies
Department of Economics and Finance
Stumpergasse 56
A-1060 Vienna, AUSTRIA
Email: gabriel.lee(a)ihs.ac.at
Tel: +43.1.59991.141
Fax: +43.1.597.0635
Homepage:
http://www.ihs.ac.at/~lee/