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We model the super-replication of payoffs linked to a country's GDP as a stochastic linear program on a discrete time and state-space scenario tree to price GDP-linked bonds. As a by-product of the model we obtain a hedging portfolio. Using linear programming duality we compute also the risk...
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We model the super-replication of payoffs linked to a country's GDP as a stochastic linear program on a discrete time and state-space scenario tree to price GDP-linked bonds. As a byproduct of the model, we obtain a hedging portfolio. Using linear programming duality we also compute the risk...
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