Static hedging of barrier options : a review of four methods

This paper examines the static hedging of a European up-and-out call option. Four different static hedging models are examined in detail and are implemented. Their hedging performance is examined in a framework that aims to simulate real market conditions. This is done to determine the practical usefulness of the static hedging schemes in comparison with dynamic delta hedging. Only one of the four models, by Derman, Ergener and Kani (1995) seems to show promise when transaction costs and stochastic volatility are taken into account.

Grantor dc:publisher.institution

Department of Mathematics and Applied Mathematics

Year dc:date.issued

2003

Author dc:creator

• Bosman, Petrus

Advisor dc:contributor.advisor

• Ouwehand, Peter

Language dc:language.iso

eng

Handle dc:identifier.uri

http://hdl.handle.net/11427/14974

OAI identifier oai:identifier

oai:open.uct.ac.za:11427/14974