Static Options Replication

Title: Static Options Replication

Speaker:  Kyoung-Kuk (Ken) Kim,Industrial and Systems Engineering at KAIST.


Abstract: Static replication of financial options has been studied for decades. This study provides yet another systematic approach for constructing exact replications for exotic options, pushing the boundary of statically replicable financial products. The special feature of this approach lies in that we replicate target products with vanilla options via certain integral equations. The computational strength of this approach comes from the fact that hedge weights and hedging errors can be explicitly quantified via Laplace transforms under mild modeling assumptions. To make the proposed method practically feasible, we address the problem of constructing a static hedging portfolio with finitely many hedging instruments. We lastly demonstrate the applicability of the proposed method by replicating highly exotic equity linked securities that have been widely popular in South Korea.


Biography: Kyoung-Kuk (Ken) Kim is currently an associate professor in the department of Industrial and Systems Engineering at KAIST. Ken received his BS and MS degrees in Mathematics from Seoul National University and Stanford University, respectively. After graduating from the Columbia Business School in 2008, he spent about one year in New York city working as a quantitative analyst at Lehman Brothers and Barclays Capital. Since Fall 2009, he's been at KAIST, working in the fields of financial engineering, risk management, stochastic modeling & simulation.


Venue: Room 513 William M.Mong Engineering Building (Engineering Building II), the Chinese University of Hong Kong.

Thursday, January 24, 2019 - 16:00 to 17:00