P. Carr and L. Wu, “Static Hedging of Standard Options,” (Working paper, New York University and Fordham University, 26 November 2002).

Abstract: We consider the hedging of options when the underlying assetprice is exposed to the possibility ofjumps of random size. Working in a single factor Markovian setting, we derive a new, static spanningrelation between a given option and a continuum of shorter-term options written on the same asset.We implement this static relation using a finite set of shorter-term options and … Read More »