We provide an analytic model for valuing continuous barrier options. The model is manifestly arbitrage-free, exactly fits the implied volatility smile, and produces prices consistent with an underlying stochastic volatility dynamic

To properly value a basket option, one should construct a joint probability density correctly repricing all asset smiles and correlation smiles. At first sight, the task seems formidable. However, by reformulating the problem, we can develop a model that is simple and fast, admitting analytic or...