Discussion Papers 2016
CIRJE-F-1008 | "Rebalancing Static Super-Replications" |
---|---|
Author Name | Takahashi, Akihiko and Yukihiro Tsuzuki |
Date | April 2016 |
Full Paper | |
Remarks | Revised in October 2016, forthcoming in International Journal of Financial Engineering 4.01 (2017): 1750003. |
Abstract |
---|
This paper proposes a trading strategy that dynamically rebalances static super-replicating portfolios, which is very useful for both investment and hedging strategies. In order to investigate general properties of the strategy, we derive the Doob-Meyer decomposition for the value process without any specications of models under the continuous processes of the underlying variables. In particular, we nd that the in- creasing part of the decomposition characterizes the performance of the strategy. Also, we obtain more concrete features for cross-currency and one-touch options based on our general framework. Moreover, nu- merical examples for cross-currency options demonstrate the effectiveness of our strategy for investment and hedging. |
Keywords: |