Pricing Exotic Options in a Path Integral Approach

Details Pricing Exotic Options in a Path Integral Approach Pricing Exotic Options in a Path Integral Approach

2004-07-13

arxiv.org/abs/cond-mat/0407321v2

Quantitative Finance 6 (2006) 55 - 66

Physics

Condensed Matter

Other Condensed Matter

21 pages, LaTeX, 3 figures, 6 tables

Scientific paper

In the framework of Black-Scholes-Merton model of financial derivatives, a path integral approach to option pricing is presented. A general formula to price European path dependent options on multidimensional assets is obtained and implemented by means of various flexible and efficient algorithms. As an example, we detail the cases of Asian, barrier knock out, reverse cliquet and basket call options, evaluating prices and Greeks. The numerical results are compared with those obtained with other procedures used in quantitative finance and found to be in good agreement. In particular, when pricing at-the-money and out-of-the-money options, the path integral approach exhibits competitive performances.

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