- Continuously monitored barrier options under Markov processes
- Mathematical Finance
- Volume | Issue number
- 23 | 1
- Pages (from-to)
- Number of pages
- Document type
- Faculty of Science (FNWI)
- Korteweg-de Vries Institute for Mathematics (KdVI)
- In this paper, we present an algorithm for pricing barrier options in one-dimensional Markov models. The approach rests on
the construction of an approximating continuous-time Markov chain that closely follows the dynamics of the given Markov model.
We illustrate the method by implementing it for a range of models, including a local Lévy process and a local volatility jump-diffusion.
We also provide a convergence proof and error estimates for this algorithm.
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