Static Replicating Portfolio
Positions
Present Value
Classification
✕
Single, Fixed Number of Shares
—
✓
Continuous Payoff
piecewise linear, no digital terms
✓
Single, Fixed Maturity
—
Complex
Delta Test
Delta at issuance, in closed form; at or above 0.80 the contract qualifies as a section 871(m) transaction.
Delta at Issuance
Substantial Equivalence Test
Setup
| Testing prices $S^\pm$ | — |
|---|---|
| Probabilities $\pi^\pm$ | — |
| Initial hedge | — |
Simple Contract Benchmark
| Type |
|
|---|---|
| Strike | — |
| Delta | — |
| Initial hedge | — |
Complex Contract
Simple Contract Benchmark
Result