Continuously monitored barrier options under Markov processes
| Authors |
|
|---|---|
| Publication date | 2011 |
| Journal | Mathematical Finance |
| Volume | Issue number | 23 | 1 |
| Pages (from-to) | 1-38 |
| Number of pages | 38 |
| Organisations |
|
| Abstract |
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. |
| Document type | Article |
| Language | English |
| Published at |
https://doi.org/10.1111/j.1467-9965.2011.00486.x
(Final published version)
|
| Permalink to this page | |