Hedging Of Chained-type Barrier Options

Barrier options are widely used as a kind of financial derivatives.They are flexibil-ity and have lower price than the ordinary options.As demand of investors unceasingly rich,more and more complex barrier options were designed,of which the chained-type barrier options are one of them.In addition to the valuation for options,much atten-tion has been paid to hedge option.This paper is on the basis of study of Jun and Ku in 2012,2013 and 2015,we obey the strike-spread approach under the BS model and replicate more complex chained-type barrier options.We use the reflection prin-ciple and propose a static replication portfolio of vanilla options for hedging of these options in the Black-Scholes model.The Monte Carlo simulation results for vanilla options with adjusted payoffs are provided to demonstrate the accuracy of the hedging strategies.This paper first describes the research background of barrier options and existing research achievements.In the second chapter,we introduce the related concepts of options and barrier options.In the third chapter,we simply reviews static hedging of single chained-type barrier options of Jun and Ku in 2015.As a result,we derive hedging method of more complex chained-type barrier options.In the fourth chapter,we provide the Monte Carlo simulation results for the values of vanilla options with adjusted payoffs,then compare them with the exact option values.Finally it is con-cluded that the hedging method can be extended to more complex chained-type barrier options.