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Wednesday 04 May 2016

The article "Super-Replication of Financial Derivatives via Convex Programming" has been published

The article "Super-Replication of Financial Derivatives via Convex Programming" written by Prof. kahalé has been published in Management Science


We give a method based on convex programming to calculate the optimal super-replicating and sub-replicating prices and corresponding hedging portfolios of a financial derivative in terms of other financial derivatives in a discrete-time setting.

Our method produces a model that matches the super-replicating (or sub-replicating) price within an arbitrary precision and is consistent with the other financial derivatives prices. Applications include robust replication in terms of call prices with various strikes and maturities of forward start options, volatility and variance swaps and derivatives, cliquets calls, barrier options, lookback and Asian options.

Numerical examples show that, in some cases, the best super-replicating and/or sub-replicating prices are within 10% of the price obtained by a standard model, but considerably differ from it in other cases. Our method can incorporate bid-ask spreads, interest rates and dividends and various limitations to the diffusion model.

Nabil Kahalé graduated in 1987 from Ecole Polytechnique with a Bachelor of Science in Engineering. He received his Ph.D. in theoretical Computer Science from MIT in 1993.

Prior to joining ESCP Europe, Nabil Kahalé has held research positions in theoretical Computer Science and then worked in the fields of Financial Derivatives and Risk Management. His current research concentrates on Risk Management and Financial Derivatives Pricing.



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