Explicit solutions of the exit problem for a class of Lévy processes; applications to the pricing of double-barrier options

DOI10.1016/J.SPA.2011.09.008MaRDI QIDQ765888zbMATH OpenOpenAlexFDO

Authors Sonia Fourati

Publication date 22 March 2012

Published in Stochastic Processes and their Applications (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1003.4917

zbMATH Keywords

fluctuation theoryWiener-Hopf factorizationexit problemsBargmann equationsdouble barrier optionsLévy processes

Mathematics Subject Classification ID

Processes with independent increments; Lévy processes (60G51) Financial applications of other theories (91G80)

Abstract: Lewis and Mordecki have computed the Wiener-Hopf factorization of a L'evy process whose restriction on $]0,+infty[$ of their L'evy measure has a rational Laplace transform. That allows to compute the distribution of $(X_t,in{f}_{0leqsleqt}{X}_s)$. For the same class of L'evy processes, we compute the distribution of $(X_t,in{f}_{0leqsleqt}{X}_s,su{p}_{0leqsleqt}{X}_s)$ and also the behavior of this triple at certain stopping time, like the first exit time of an interval containing the origin. Some applications to the pricing of double barrier options with or without rebate are evocated.

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Cited in

(9)

• First-passage times of regime switching models
• Double barrier options under Lévy processes
• Approximating Lévy processes with completely monotone jumps
• Lévy processes, phase-type distributions, and martingales
• Barrier options and touch-and-out options under regular Lévy processes of exponential type
• On the Wiener-Hopf factorization for Lévy processes with bounded positive jumps
• A note on Wiener-Hopf factorization for Markov additive processes
• A simple Wiener-Hopf factorization approach for pricing double-barrier options
• Barrier options pricing with joint distribution of Gaussian process and its maximum

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