Replicating portfolio

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Replicating portfolio

A portfolio constructed to match an index or benchmark.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Replicating Portfolio

A portfolio that attempts to match, as closely as possible, some benchmark or index. See also: Index fund, Exchange-traded fund.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
References in periodicals archive ?
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.
We use the replicating portfolios to illustrate properties of bonds outstanding in the US credit market.
More generally, the replicating portfolios for the most average neighboring bonds.
To hedge an option, or any risky security, one needs to construct a replicating portfolio of other securities, one in which the payoffs of the portfolio exactly match the payoffs of the option.
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.