Questions tagged [replication]

Question 1

I am reading through famous sources like Hull, Wilmott, et.c., where they construct the replicating portfolio in a one-step binomial model. This involves setting up a system of equations, where we ...

Question 2

I’m working on replicating the parameter estimates for the four models in Table 1 of the paper “Forecasting Inflation Using Univariate Continuous-Time Stochastic Models” by Kevin Fergusson (2020), ...

Question 3

I'm currently writing a bachelor's thesis on GPU accelerated option pricing algorithms. As a CS major I'm not knowledgeable on the higher level math, but I have tried learning the basics of option ...

Question 4

I’m trying to replicate Ang et al. (2006) “The Cross‐Section of Volatility and Expected Returns” where they construct a daily‐frequency volatility‐mimicking factor FVIX via $\Delta VIX_t = c + b'X_t +...

Question 5

I apologise if my question has been answered already however I could not find a complete explanation online. My understanding of the derivation of the Black Scholes model is that given a derivative, ...

Question 6

Dividend futures are derivatives which isolated only dividend from underlying index. So for example, S&P 500 dividend futures are isolated dividend from S&P 500. I would like to replicate S&...

Question 7

Suppose we are in a market following the Black-Scholes (BS) model, and we want to use cash and stock to replicate a call option. We perform Taylor expansion of the call price $ V $ with respect to the ...

Question 8

I am trying to understand how one can replicate (approximately, if not entirely) the pay off for a Range accrual note and FX TARF? There is generic literature, which refers Range Accrual as a series ...

Question 9

I’ve been thinking about this problem and I’m missing something. Assuming a BSM world, I sell an OTM option at strike K. I then proceed to delta hedge it at the strike K each time K is touched. Why ...

Question 10

I have two assets, $S_1$ and $S_2$, and a European exchange-one-asset-for-another call option, such as those introduced by Margrabe (1978). So my payoff at expiration is the difference between the ...

Question 11

Lets consider a hypothetical stock with current price of $S_t$ at time t and it can take any positive value with a strictly positive probability. There exists a derivative that pays $ e^{S_T}$ at ...

Question 12

Speaking on a high level, in the Black-Scholes model the $f\left(T,S_{T}\right)$ payoff's value dynamic is given by $$df\left(t,S_{t}\right)=\left(\frac{\partial f}{\partial t}\left(t,S_{t}\right)+\...

Question 13

The above picture shows the payoff at expiry(in gold) and at current time T+0(in blue) for a bull call spread. I am trying to understand American options and to know if it has any significant ...

Question 14

I have not seen much talk about exotic options, and if they are actually traded. Is it possible to replicate the payoff of a ‘Shout option’ using standard European/American call and put options?

Question 15

Consider a derivative in the Black-Scholes market with the price formula $\Pi_t = F(t,S_t)$. I want to find a self-financing portfolio consisting of the stock and the bank account that hedges the ...

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Questions tagged [replication]

Replicating portfolio - must the underlying asset be used?

Replicating Parameter Estimates from Fergusson’s 2020 Inflation Forecasting Models

What is the purpose of risk neutral valuation vs replicating portfolio approach

How does Ang et al. (2006) aggregate daily‐frequency FVIX returns into a monthly FVIX factor?

Confusion with replicated portfolio in Black Scholes model

How to replicate S&P 500 index using dividend futures?

Replicating call option by cash and stock under BS model

Static/Dynamic Replication of Range Accrual and TARF?

BSM replication with expiry delta

Synthetic replication of a spread option payoff

Help me understand super replicating portfolio

Hedging gamma, theta or other risks

Understanding American option payoff at T+0

Shout option payoff replication

Delta hedge for derivative in Black-Scholes market

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