Rebalancing strategies for synthetic call options

This dissertation determines how well the Rubinstein-Leland (1981) synthetic option strategy replicates listed call options and theoretical Black-Scholes (BS) call premiums. Three rebalancing methods are implemented to trigger changes in the stock/debt mix: time--the portfolio is changed at fixed intervals, delta--after the delta value changes by certain percentages, and stock--when the stock changes by specified percentages. Descriptive statistics are calculated for the rebalancing errors and transactions costs for each of the strategies. The rebalancing error is equal to the difference between the synthetic call and listed call values.