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Continuously monitored barrier options under Markov processes

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.
Year of publication:
2009-08
Authors: Mijatovic, Aleksandar ; Pistorius, Martijn
Institutions: arXiv.org
Extent:
application/pdf
Series:
Type of publication: Book / Working Paper
Source:
Persistent link: https://www.econbiz.de/10005099130
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