|
(1) A technique to create an option-like payoff pattern through a series of transactions in the underlying or in related futures contracts as in dynamic hedging and traditional portfolio insurance. See Replicating Portfolios. (2) Creating a long-term option out of a sequence of baskets of short-term options. As the price of the underlying moves, there may be a need to trade the replicating options dynamically, but long-term option replication with short- term options will generally require fewer portfolio adjustments than option replication with the underlying or with related futures contracts. Also called Synthetic Option.
|
