Replicating a discretely monitored down-and-in barrier put with a static portfolio of European options instead of dynamic hedging.
I use the KO-PEP simulation to estimate risk, then compare its results with a simple historical backtest.
A Monte Carlo model for the Coca-Cola and Pepsi pairs trade, using Cholesky correlation for the stocks and an Ornstein-Uhlenbeck process for the spread.
