This paper extends the static hedging portfolio (SHP) approach of Derman et al. (1995) and Carr et al. (1998) to price and hedge American knock-in put options under the Black–Scholes model and the constant elasticity of variance (CEV) model. We use standard European calls (puts) to construct...

This paper extends the static hedge portfolio (SHP) approach of Derman, Ergener, and Kani (1995) and Carr, Ellis, and Gupta (1998) to price and/or hedge American knock-out options. We construct a SHP to match the complicated boundary conditions of American barrier options. Detailed analyses of...

This paper generalizes the seminal Cox-Ross-Rubinstein (CRR) binomial model by adding a stretch parameter. The generalized CRR (GCRR) model allows us to fine-tune (via the stretch parameter) the lattice structure so as to efficiently price a range of options, such as barrier options. Our...

In this paper, we focus on two-factor lattices for general diffusion processes with state-dependent volatilities. Although it is common knowledge that branching probabilities must be between zero and one in a lattice, few methods can guarantee lattice feasibility, referring to the property that...

This paper utilizes the static hedge portfolio (SHP) approach of Derman et al. [Derman, E., Ergener, D., Kani, I., 1995. Static options replication. Journal of Derivatives 2, 78-95] and Carr et al. [Carr, P., Ellis, K., Gupta, V., 1998. Static hedging of exotic options. Journal of Finance 53,...