Static hedging under maturity mismatch

@article{Mayer2015StaticHU,
  title={Static hedging under maturity mismatch},
  author={Philipp A. Mayer and Natalie Packham and Wolfgang M. Schmidt},
  journal={Finance and Stochastics},
  year={2015},
  volume={19},
  pages={509-539}
}
Can shorter maturity European options be statically hedged with longer maturity plain vanilla options? This problem appears, for example, when analysing options on forwards in relation to liquid options on the spot underlying. Under mild assumptions on the underlying security price process and the option’s payoff function, we show that approximate static hedges exist and we provide a recipe for constructing them. Examples illustrate the power of the hedge and its sensitivity to modelling… CONTINUE READING
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