Výkonnost replikace digitálních opcí při neúplném modelu

Abstract

Digital options are financial derivatives allowing the trader to decompose the payoff of more complicated derivatives. The payoff of these contracts is all or nothong. Therefore, contracts of this type are suitable especially to hedge exotic derivatives with any discontinuity in the payoff function. The paper provides the two most common ways to replicate the payoff of these contracts - static and dynamic replication. Both methods are compared in discrete environment and subsequently studied for the case of incomplete model. To be more exact, we suppose stochastic volatility of underlying assent returns and the negative skewness plus positive excess kurtosis of underlying returns.