This paper proposes two-step static hedging strategies for European basket options by using only plain-vanilla options … on a subset of underlying assets. The basic idea is stimulated from a static super-hedging strategy dependent on the … hedging cost. Through analyzing a numerical example, it is concluded that this static hedging portfolio captures a trade …

Hedging down-and-out puts (and up-and-out calls), where the maximum payoff is reached just before a barrier is hit that … would render the claim worthless afterwards, is challenging. All hedging methods potentially lead to large errors when the …, we analyze this hedging situation, especially the case of overnight trading gaps. We show how a position in a short …