Continuously monitored barrier options under Markov processes
Pricing of Securities
2015-03-13 v2 Computational Finance
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.
Keywords
Cite
@article{arxiv.0908.4028,
title = {Continuously monitored barrier options under Markov processes},
author = {Aleksandar Mijatovic and Martijn Pistorius},
journal= {arXiv preprint arXiv:0908.4028},
year = {2015}
}
Comments
35 pages, 5 figures, to appear in Mathematical Finance