Applied Math Seminar
Monday, March 22, 1999, 3:30pm, 120 Physics
Alexander Lipton-Lifschitz (Banker's Trust)
Passport Options and Perfect and Imperfect Hedging Strategies
Abstract:- Conventional options allow for little (if any) buyer's participation. Passport options (which represent a completely new class of derivative instruments) were invented at Bankers Trust about two years ago in order to address this issue. The buyer of a passport option can choose her own strategy and collect all the gains generated by this strategy (if any) while the seller has to absorb all the losses. Thus, passport options can be considered as call options with zero strike on the trading account generated by the buyer's strategy. In the first part of the talk the speaker will describe the original approach of Hyer, Lipton-Lifschitz and Pugachevsky to the valuation of passport options and their hedging, as well as subsequent results obtained by other investigators. In the second part of the talk the speaker will discuss some relations between passport options and imperfectly hedged conventional options (joint work with Esipov, Kani and Vaysburd).
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