Imperial College London
Professor Harry Zheng

ProfessorHarryZheng

Faculty of Natural Sciences, Department of Mathematics

Professor of Mathematics
 
 
 
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Contact

 

+44 (0)20 7594 8539h.zheng Website

 
 
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Location

 

6M16Huxley BuildingSouth Kensington Campus

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Summary

 

Publications

Citation

BibTex format

@article{Ma:2015:10.1080/14697688.2015.1046397,
author = {Ma, J and Deng, D and Zheng, H},
doi = {10.1080/14697688.2015.1046397},
journal = {Quantitative Finance},
pages = {593--603},
title = {Convergence analysis and optimal strike choice for static hedges of general path-independent pay-offs},
url = {http://dx.doi.org/10.1080/14697688.2015.1046397},
volume = {16},
year = {2015}
}
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RIS format (EndNote, RefMan)

TY  - JOUR
AB  - In this paper, we propose a new algorithm to find the optimal static replicating portfolios for general path-independent nonlinear pay-off functions and give an estimate for the rate of convergence that is absent in the literature. We choose the static replication by designing an adaptation function arising in the error bound between the nonlinear pay-off function and the linear spline approximation and derive the equidistribution equation for selecting the optimal strikes. The numerical tests for variance swaps, swaptions, static quadratic hedges and also for a jump-diffusion process, allowing for the default of the underlying asset, show that the proposed iterative equidistribution equation algorithm is simple, fast and accurate. The paper generalizes and improves the results on static replication and approximation in the literature.
AU  - Ma,J
AU  - Deng,D
AU  - Zheng,H
DO  - 10.1080/14697688.2015.1046397
EP  - 603
PY  - 2015///
SN  - 1469-7696
SP  - 593
TI  - Convergence analysis and optimal strike choice for static hedges of general path-independent pay-offs
T2  - Quantitative Finance
UR  - http://dx.doi.org/10.1080/14697688.2015.1046397
UR  - http://hdl.handle.net/10044/1/32510
VL  - 16
ER  -
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