Static hedge portfolios for barrier options are extremely sensitive with respect to changes of the volatility surface. In this paper we develop a semi-infinite programming formulation of the static super-replication problem in stochastic volatility models which allows to robustify the hedge...

We consider the hedging of derivative securities when the price movement of the underlying asset can exhibit random jumps. Under a one factor Markovian setting, we derive a spanning relation between a long term option and a continuum of short term options. We then apply this spanning relation to...

We consider the hedging of options when the price of the underlying asset is always exposed to the possibility of jumps of random size. Working in a single factor Markovian setting, we derive a new spanning relation between a given option and a continuum of shorter-term options written on the...

We develop a generic method for constructing a weak static minimum variance hedge for a wide range of derivatives that may involve optimal exercise features or contingent cash flow streams to provide a hedge along a sequence of future hedging dates. The optimal hedge is constructed using a...

We conduct an empirical evaluation of a static super-replicating hedge of barrier options. The hedge is robust to uncertainty about the future skew. Using almost seven years of current data on the DAX, we evaluate the performance of the hedge and compare it with those of both a dynamic and a...

Imposing a symmetry condition on returns, Carr and Lee (Math Financ 19(4):523–560, <CitationRef CitationID="CR10">2009</CitationRef>) show that (double) barrier derivatives can be replicated by a portfolio of European options and can thus be priced using fast Fourier techniques (FFT). We show that prices of barrier derivatives in...</citationref>

A jump diffusion model coupled with a local volatility function has been suggested by Andersen and Andreasen (2000). By generating a set of option prices assuming a jump diffusion with known parameters, we investigate two crucial challenges intrinsic to this type of model: calibration of...

This paper derives, in closed forms, upper and lower bounds on risk-neutral cumulative distribution functions of the underlying asset price from the observed prices of European call options, based only on the no-arbitrage assumption. The computed bounds from the option price data show that the...