Static hedging of barrier options : a review of four methods
Master Thesis
2003
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University of Cape Town
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Abstract
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.
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Bibliography: leaves 85-87.
Reference:
Bosman, P. 2003. Static hedging of barrier options : a review of four methods. University of Cape Town.