Consider a hypothetical example in which the 1-year interest rate is 2%. A zero-coupon bond without credit risk that pays 1,020 yen in one year can be replicated by depositing 1,000 yen today. The price of the bond is therefore 1,000 yen. For derivatives, forwards and options are replicated by combining the underlying asset with borrowing or lending.
Replication
- Japanese
- 複製
- Last reviewed
- September 25, 2026
This is a draft, shown for review before publication.
Replication is building, by trading other instruments with known prices, a combination (a replicating portfolio) whose future cash flows match those of a given instrument in every outcome. In a market with no arbitrage opportunities, the cost of building the combination is the price of the instrument.