Sturm-Liouville operators and applications
Sturm-Liouville operators and applications
Pricing and Hedging Path-Dependent Options Under the CEV Process
Management Science
Pricing Options on Scalar Diffusions: An Eigenfunction Expansion Approach
Operations Research
Handbook of Mathematical Functions, With Formulas, Graphs, and Mathematical Tables,
Handbook of Mathematical Functions, With Formulas, Graphs, and Mathematical Tables,
Robust Hedging of Double Touch Barrier Options
SIAM Journal on Financial Mathematics
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We consider the problem of semistatic hedging of a single barrier option in a model where the underlying is a time-homogeneous diffusion, possibly running on an independent stochastic clock. The main result of the paper is an analytic expression for the payoff of a European-type contingent claim, which has the same price as the barrier option up to hitting the barrier. We then consider some examples, such as the Black-Scholes, constant elasticity of variance, and zero-correlation SABR models. Finally, we investigate an approximation of the static hedge with options of at most two different strikes.