Replicating Portfolios
How portfolios reproduce derivative cash flows under explicit assumptions.
#Replication
A replicating portfolio reproduces another claim's value or terminal cash flows across an admissible state space. No-arbitrage links the derivative's value to the cost of replication when the construction is sufficiently exact and markets satisfy the model assumptions.
#Three paths
| Method | Construction | Dependency |
|---|---|---|
| Static | Fixed instruments span the terminal payoff | Instrument availability and matching terms |
| Dynamic | Holdings rebalance as price and time change | Trading frequency, calibration and cost |
| CFMM / RMM | Arbitrage moves reserves along a designed function | External liquidity, arbitrage and invariant behavior |
#Discrete markets
Continuous-time replication meets discrete blocks, fees, limited arbitrage capital, jumps and model error. These frictions create a measurable gap between a target payoff and realized reserves.
- Replicating Portfolios: Constructing Permissionless Derivatives
Primitive research describing RMM-01 and onchain structured-product constructions.