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Abstract
A computational method is described for option replication. In particular, a procedure is provided for computing the projection basis that corresponds to a positive basis of ℝ m . Application of this procedure in order to compute maximal submarkets that replicate any option is demonstrated. Specifically, we provide a computational study for the replication of options in security markets with a finite number of states and a finite number of primitive assets with payoffs given by linearly independent vectors of ℝ m . The theoretical background of this work follows the results in Polyrakis and Xanthos [Maximal submarkets that replicate any option, Ann. Finance, DOI: 10.1007/s10436-009-0143-9]. Our goal is to make option replication computationally tractable and hence more viable as a financial tool.
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