Comparison of dynamic and static hedging techniques: Using single asset barrier options

Abstract

The aim of this CCS project is to compare two of the most prominent hedging techniques for Exotic Options in today's Financial Markets. This project demonstrates this for a widely traded category of Exotic Options, Single Asset Barrier Options, under Black-Scholes Framework. It required a thorough understanding of the models as well as implementation for both techniques along with pricing of the options. Both the techniques were modelled in a simulated environment to check the relative efficiency and feasibility of the static hedging model as against the current dynamic one with an attempt to explain the results more intuitively and by using standard options