TY - JOUR
T1 - Static hedging of timing risk
AU - Carr, Peter
AU - Picron, Jean Francois
PY - 1999/3/1
Y1 - 1999/3/1
N2 - Many exotic options involve a payoff that occurs at the first time the stock price crosses a constant barrier. Although the amount to be paid is known, the time at which it is paid is not. This article shows how a static position in European options can be used to hedge against this timing risk. The simulation results show that this approach outperforms dynamic hedging with the underlying. The authors show how these results can be used to price any barrier option.
AB - Many exotic options involve a payoff that occurs at the first time the stock price crosses a constant barrier. Although the amount to be paid is known, the time at which it is paid is not. This article shows how a static position in European options can be used to hedge against this timing risk. The simulation results show that this approach outperforms dynamic hedging with the underlying. The authors show how these results can be used to price any barrier option.
UR - http://www.scopus.com/inward/record.url?scp=84979760970&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=84979760970&partnerID=8YFLogxK
U2 - 10.3905/jod.1999.319119
DO - 10.3905/jod.1999.319119
M3 - Article
AN - SCOPUS:84979760970
SN - 1074-1240
VL - 6
SP - 57
EP - 70
JO - Journal of Derivatives
JF - Journal of Derivatives
IS - 3
ER -