Static Hedging for the Prices of Raw Materials to Hedge Based on Poisson Jump-Diffusion Model

摘要

This paper investigates the static hedging strategies of American binary warrants to hedge the prices of raw materials based on the Poisson jump-diffusion model. We extend the model in Peter Carr (1999) by taking jumps of stock price into account. The main idea is replicating the American binary warrants by exotic warrants, replicating the exotic warrants by path-independent warrants, and then replicating the path-independent warrants with vanilla warrants. Since vanilla warrants are free of timing risk, therefore, using hedging strategies above, investors can hedge the time risk of American binary warrants in the jump-diffusion model. Finally, we provide methods to construct the hedging strategies.