Hedging Double Barriers with Singles

A. Sbuelz

Research output: Working paperDiscussion paperOther research output

489 Downloads (Pure)

Abstract

Double barrier options provide risk managers with good-deal flexibility in tailoring portfolio returns.Their hedges offer full protection only if unwound along the barriers.This work provides non-dynamic hedges that project the risk of double barriers on to single barriers.Non-dynamic hedges overcome bulky transaction costs due to dynamic hedging trades.That projection implies that two single barriers written on the double barrier corridor extrema are often a comfortable, even if imperfect, hedge.Such a hedge is simple and gives automatic protection along the barriers.Automatic protection overcomes trading issues along the barriers.
Original languageEnglish
Place of PublicationTilburg
PublisherFinance
Number of pages36
Volume2000-112
Publication statusPublished - 2000

Publication series

NameCentER Discussion Paper
Volume2000-112

Keywords

  • hedging

Fingerprint Dive into the research topics of 'Hedging Double Barriers with Singles'. Together they form a unique fingerprint.

  • Cite this

    Sbuelz, A. (2000). Hedging Double Barriers with Singles. (CentER Discussion Paper; Vol. 2000-112). Finance.