On Replication of Claims
In Chapters 5 and 8, the solution of the optimal investment problem was decomposed on two different problems: calculation of the optimal claim and calculation of a strategy to replicate the optimal claim. In this chapter, we discuss some aspects of replication of given claims. First, some possibilities are considered for replicating the desired claim by purchasing options. Second, an example is considered of an incomplete market with transactions costs and with nonpredictable volatility, when replication is replaced for rational superreplication.
KeywordsHull Volatility Hedging
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