Partial replication of shorted call and its effectiveness in presence of discrete trading and transaction cost

Result code in IS VaVaI
<a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F61989100%3A27510%2F03%3A00007650" target="_blank" >RIV/61989100:27510/03:00007650 - isvavai.cz</a>
Result on the web
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DOI - Digital Object Identifier
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Result language
angličtina
Original language name
Partial replication of shorted call and its effectiveness in presence of discrete trading and transaction cost
Original language description
The purpose of this article is to provide basic theory behind partial replication and hedging. Standard way to replicate option payoff suppose to use all the initial capital (obtained from written positions). However, some agents are unwilling or unableto spend all the money. The method of partial replication is based on construction of modified contingent claims. In this way we can save a significant amount of money accepting some probability of shortfall. In particular, we describe construction of the modified call as a portfolio of plain vanilla options and cash digitals. We also study the efficiency of subsequent replication of this modified claim with discrete strategies in presence of transaction costs. In order to compare the effect of discretetrading on efficiency of dynamic partial replication the Monte Carlo simulation is used.
Czech name
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Czech description
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Publication year
2003
Confidentiality
S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů

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