Semi-analytic pricing of double barrier options with time-dependent barriers and rebates at hit

DOI10.3934/FMF.2021002zbMATH Open1498.91442arXiv2009.09342OpenAlexW3163061933MaRDI QIDQ2170290FDOQ2170290

Andrey Itkin, Dmitry Muravey

Publication date: 30 August 2022

Published in: Frontiers of Mathematical Finance (Search for Journal in Brave)

Abstract: We continue a series of papers devoted to construction of semi-analytic solutions for barrier options. These options are written on underlying following some simple one-factor diffusion model, but all the parameters of the model as well as the barriers are time-dependent. We managed to show that these solutions are systematically more efficient for pricing and calibration than, eg., the corresponding finite-difference solvers. In this paper we extend this technique to pricing double barrier options and present two approaches to solving it: the General Integral transform method and the Heat Potential method. Our results confirm that for double barrier options these semi-analytic techniques are also more efficient than the traditional numerical methods used to solve this type of problems.

Full work available at URL: https://arxiv.org/abs/2009.09342

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zbMATH Keywords

semi-analytical solutiondouble barrier optionstime-dependent boundariesone-factor modelstime-dependent rebates-at-hit

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Numerical methods (including Monte Carlo methods) (91G60) Numerical methods for integral transforms (65R10) PDEs in connection with classical thermodynamics and heat transfer (35Q79)

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Cited In (1)

• ANALYTICAL PRICING OF DOUBLE-BARRIER OPTIONS UNDER A DOUBLE-EXPONENTIAL JUMP DIFFUSION PROCESS: APPLICATIONS OF LAPLACE TRANSFORM

Uses Software

• Digital Library of Mathematical Functions

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