Journal of Computational Finance
ISSN:
1460-1559 (print)
1755-2850 (online)
Editor-in-chief: Christoph Reisinger
Static replication of barrier options: some general results
Leif B. G. Andersen, Jesper Andreasen, David Eliezer
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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