How to replicate exotic option (maybe hybrid) using vanillas?
I have heard once that the idea is to find a derivative wrt the strike of the option value, so that to get a CDF of some distribution, and by having second derivative wrt the strike to get a PDF which in turn somehow helps...
- Can somebody give an idea/reference to the approach I vagually described above?
- Are there other standard approaches?
P.S. I do not know any book telling about it.. But I found a post here, by nicolas, that probably tells the approach I am asking about.