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Static Hedging Methods for Pricing Double Barrier Options

Yi-Ling Chen ^a

Hong-Yu Luo ^a

Wei-Che Tsai ^a

Hang Zhang ^b

^aNational Sun Yat-sen University, Taiwan. Corresponding e-mail: hangzhang@jmu.edu.cn.

^bJimei University, China

Advances in Pacific Basin Business, Economics and Finance

ISBN: 978-1-80117-313-1, eISBN: 978-1-80117-312-4

Publication date: 15 March 2022

Abstract

This research applies a static hedging portfolio method derived from Derman, Ergener, and Kani (1995) (henceforth Derman's SHP method) and a new SHP method with European cash-or-nothing binary options developed by Chung, Shih, and Tsai (2013) to price European continuous double barrier (ECDB) options and the rebates of the ECDB options. Our numerical results indicate that the new SHP method outperforms Derman's SHP method in terms of efficiency and effectiveness under all circumstances.

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Citation

Chen, Y.-L., Luo, H.-Y., Tsai, W.-C. and Zhang, H. (2022), "Static Hedging Methods for Pricing Double Barrier Options", Lee, C.-F. and Yu, M.-T. (Ed.) Advances in Pacific Basin Business, Economics and Finance (Advances in Pacific Basin Business, Economics and Finance, Vol. 10), Emerald Publishing Limited, Leeds, pp. 29-58. https://doi.org/10.1108/S2514-465020220000010002

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