Some (Semi-)Static Hedging Strategies for Exotic Options

Quant Talk
Wednesday, 25 November 2009
6.30 pm, room NB 01

Abstract

Semi-static hedging strategies consist of rebalancing the underlying portfolio only at certain pre-specified time points (or stopping times) during the lifetime of the hedged derivative, as opposed to classical dynamic hedging, where adjustments have to be made continuously in time. In many market situations (and in particular in times of limited liquidity) this alternative approach to the hedging problem is quite useful and thus it has become an increasingly popular research topic over the last years.

In this talk we survey some well-known and less well-known results concerning semi-static hedging strategies for barrier as well as strongly path-dependent options under different (and also without) model assumptions. In particular we show how to derive model independent upper and lower price bounds for Asian options by semi-static hedging strategies and a method to strengthen these bounds by mild and quite intuitive extra-assumptions on the market model.