Hedging Double Barriers with Singles

A. Sbuelz

Research output: Working paper › Discussion paper › Other research output

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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

Fingerprint

Hedging
Hedge
Transaction costs
Managers
Dynamic hedging
Tailoring
Double barrier options

Keywords

  • hedging

Cite this

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

Hedging Double Barriers with Singles. / Sbuelz, A.

Tilburg : Finance, 2000. (CentER Discussion Paper; Vol. 2000-112).

Research output: Working paper › Discussion paper › Other research output

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AB - 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.

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Sbuelz A. Hedging Double Barriers with Singles. Tilburg: Finance. 2000. (CentER Discussion Paper).

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