Continuously monitored barrier options under Markov processes
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Publication:4906512
DOI10.1111/J.1467-9965.2011.00486.XzbMATH Open1282.91378arXiv0908.4028OpenAlexW3124879778MaRDI QIDQ4906512FDOQ4906512
Aleksandar Mijatović, Martijn R. Pistorius
Publication date: 28 February 2013
Published in: Mathematical Finance (Search for Journal in Brave)
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 Levy process and a local volatility jump-diffusion. We also provide a convergence proof and error estimates for this algorithm.
Full work available at URL: https://arxiv.org/abs/0908.4028
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continuous-time Markov chainCGMY modelvariance gamma processbarrier optionsnormal inverse Gaussian processSato processesLévy processespricing algorithmslocal Lévy processeslocal volatility models with jumps
Processes with independent increments; Lévy processes (60G51) Numerical analysis or methods applied to Markov chains (65C40) Derivative securities (option pricing, hedging, etc.) (91G20) Numerical methods (including Monte Carlo methods) (91G60)
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