What is replicating portfolio approach?
The replicating portfolio (RP) approach to the calculation of capital for life insurance portfolios is an industry standard. The RP is obtained from projecting the terminal loss of discounted asset–liability cash flows on a set of factors generated by a family of financial instruments that can be efficiently simulated.
What is the purpose of a replicating portfolio?
Replicating portfolios allow insurance companies to create an integrated view of assets and liabilities that can be used to perform a detailed analysis of asset-liability management (ALM) risks.
What is the replicating portfolio for this put option?
The replicating portfolio to value a put option is a short position in the stock and purchase of a bond. This portfolio is called a replicating portfolio because if you sold the stock now (quantity discussed below) and lent the present value of the stock, your payoff will exactly match the payoff from the put option.
How do you calculate a replicating portfolio?
Replicating portfolio, contd. = (cu − cd)er + ucd − dcu (u − d)er = (er − d)cu + (u − er)cd (u − d)er . c = pcu + (1 − p)cd er . Based on binomial model for share prices.
What does replicating mean?
: to repeat or duplicate (as an experiment) intransitive verb. : to undergo replication : produce a replica of itself virus particles replicating in cells. replicate. noun.
What is the replication strategy?
A replication strategy determines the nodes where replicas are placed. The total number of replicas across the cluster is referred to as the replication factor. A replication factor of 2 means two copies of each row, where each copy is on a different node.
What does replication mean in finance?
replicating portfolio
In mathematical finance, a replicating portfolio for a given asset or series of cash flows is a portfolio of assets with the same properties (especially cash flows). In practice, replicating portfolios are seldom, if ever, exact replications.
What is a bank replicating portfolio?
A replicating investment portfolio is a collection of fixed-income investments based on an investment strategy that aims to reflect the typical interest rate maturity of the savings deposits (also referred to as ‘non-maturing deposits’).
How option prices are determined?
Options prices, known as premiums, are composed of the sum of its intrinsic and time value. Intrinsic value is the price difference between the current stock price and the strike price. An option’s time value or extrinsic value of an option is the amount of premium above its intrinsic value.
Is a replicating portfolio self financing?
A self-financing portfolio is an important concept in financial mathematics. A self-financing portfolio is a replicating portfolio. In mathematical finance, a replicating portfolio for a given asset or series of cash flows is a portfolio of assets with the same properties.
What does replicate mean in research?
Replication is a term referring to the repetition of a research study, generally with different situations and different subjects, to determine if the basic findings of the original study can be applied to other participants and circumstances.
What is the example of replication?
Replication is the act of reproducing or copying something, or is a copy of something. When an experiment is repeated and the results from the original are reproduced, this is an example of a replication of the original study. A copy of a Monet painting is an example of a replication.