Synthetic replication
Encyclopedia
Synthetic replication is the process by which a financial asset's payoff is exactly replicated by trading other securities.
For instance Black Scholes theory claims vanilla option pricing can be achieved through the use of stock
and zero-coupon bond.
For instance Black Scholes theory claims vanilla option pricing can be achieved through the use of stock
Stock
The capital stock of a business entity represents the original capital paid into or invested in the business by its founders. It serves as a security for the creditors of a business since it cannot be withdrawn to the detriment of the creditors...
and zero-coupon bond.