Replicating strategy

In Finance a Replicating Strategy of a particular financial instrument is a set of liquid, usually exchange-traded assets with the same net profit.

References

    Definition :

    A dynamic trading strategy that shifts a portfolio's exposure between a riskless and a risky asset or between two or more risky assets in order to produce the same payoff function as another strategy or asset. Portfolio insurance, for example, which shifts a portfolio between a riskless and a risky asset, is designed to produce the same payoff function a protective put option strategy. Replicating strategies are used by dealers to hedge the risk exposure that arises from writing options. [1]

    Self financing

    Admissible

    Vt=(St-K)>0


    1. ↑ © Copyright 1996, 1999 Gary L.Gastineau. First Edition. © 1992 Swiss Bank Corporation.
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