Replicating portfolio

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Replicating portfolio

A portfolio constructed to match an index or benchmark.

Replicating Portfolio

A portfolio that attempts to match, as closely as possible, some benchmark or index. See also: Index fund, Exchange-traded fund.
References in periodicals archive ?
The errors are obtained using (32) for both replicating portfolios based on 100,000 index trajectories.
On the other hand, fewer trading dates may lead to less expensive replicating portfolios when including transaction costs.
This dynamic hedging strategy specifies the composition of the underlying replicating portfolio.
Let V(t, n) denote the time t value process of the replicating portfolio for a contingent claim maturing at n, that is, V(t, n) = a (t, n)S(t) + b(t, n).
First, the models under consideration are calibrated to the observed cross-sectional vanilla option prices and the resulting models are used to set up replicating portfolios for other options at the same time.
By looking at barrier options, these studies address the essence of model risk in options but are limited in their focus on static hedging where the replicating portfolios are not rebalanced until the maturity of the target option once they have been constructed.
To avoid this problem, ATM options with a fixed maturity are used when constructing the replicating portfolios at any rebalance time.
Replicating portfolios can also be used to price options, but this discussion will be limited to their hedging properties.
Replicating portfolios always have this property: liquidating the current portfolio nets exactly enough money to form the next portfolio.
As for the one-period model, the example for a two-period model assumes a replicating portfolio for a call option on a stock currently valued at $100 with a strike price of $100 and which expires in a year.
These replicating portfolios are not without risk as they aim to forecast future hedge fund behavior with past returns.
patent for its stochastic optimization algorithm and process for replicating portfolios of securities.