Double-sided Parisian option pricing (Q964673)

The authors treat the pricing of the double-sided Parisian options via Fourier transforms. The calculation of Fourier transforms instead of Laplace transforms is motivated by the fact that a lot of numerical Laplace inversion algorithms are using the complex continuation to Fourier transforms. In order to price the contract, the pricing problem is rewritten into the problem of calculating a probability. This probability is connected with the excursions of Brownian motion. The case where the life of the option has started and we are possibly for some time period already below the lower barrier or above the upper barrier, is studied. The Parisian put contract type is discussed, and various contract types that can be derived from the double-sided Parisian knock-in call are summarized. The Fourier transform is discussed as mathematical tool and an alternative algorithm is proposed. Numerical examples show various features of the double-sided Parisian option price and the Greeks.