01 Jan 2001, Energy Risk glossary , Energy Risk
To replicate the payout of an option by buying or selling other instruments. In the case of dynamic replication, this involves dynamically buying or selling the underlying (or futures, where transaction costs are cheaper) in proportion to an option’s delta. In the case of static replication, the option is hedged with a basket of standard options whose composition does not change with time.
© Incisive Media Investments Limited 2014, Published by Incisive Financial Publishing Limited, Haymarket House, 28-29 Haymarket, London SW1Y 4RX, are companies registered in England and Wales with company registration numbers 04252091 & 04252093