Continuity correction for barrier options in jump-diffusion models

Details Continuity correction for barrier options in jump-diffusion models Continuity correction for barrier options in jump-diffusion models

2010-12-17

arxiv.org/abs/1012.3882v1

Mathematics

Probability

33 pp

Scientific paper

The aim of this paper is to study the continuity correction for barrier options in jump-diusion models. For this purpose, we express the pay-off a barrier option in terms of the maximum of the underlying process. We then condition with respect to the jump times and to the values of the underlying at the jump times and rely on the connection between the maximum of the Brownian motion and Bessel processes.

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