Pricing and hedging barrier options in a hyper-exponential additive model

Details Pricing and hedging barrier options in a hyper-exponential additive model Pricing and hedging barrier options in a hyper-exponential additive model

2008-12-16

arxiv.org/abs/0812.3117v2

Economy

Quantitative Finance

Pricing of Securities

26 pages, 8 figures. To appear in IJTAF

Scientific paper

In this paper we develop an algorithm to calculate the prices and Greeks of barrier options in a hyper-exponential additive model with piecewise constant parameters. We obtain an explicit semi-analytical expression for the first-passage probability. The solution rests on a randomization and an explicit matrix Wiener-Hopf factorization. Employing this result we derive explicit expressions for the Laplace-Fourier transforms of the prices and Greeks of barrier options. As a numerical illustration, the prices and Greeks of down-and-in digital and down-and-in call options are calculated for a set of parameters obtained by a simultaneous calibration to Stoxx50E call options across strikes and four different maturities. By comparing the results with Monte-Carlo simulations, we show that the method is fast, accurate, and stable.

Affiliated with

Also associated with

No associations

Rating

Pricing and hedging barrier options in a hyper-exponential additive model does not yet have a rating. At this time, there are no reviews or comments for this scientific paper.

If you have personal experience with Pricing and hedging barrier options in a hyper-exponential additive model, we encourage you to share that experience with our LandOfFree.com community. Your opinion is very important and Pricing and hedging barrier options in a hyper-exponential additive model will most certainly appreciate the feedback.

Rate now

Comments { 0 }

Profile ID: LFWR-SCP-O-227646