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2007.2: An exact analytical solution for discrete barrier options

2007.2: Gianluca Fusai, David Abrahams and Carlo Sgarra (2006) An exact analytical solution for discrete barrier options. Finance and Stochastics, 10 (1). pp. 1-26. ISSN 1432-1122

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DOI: 10.1007/s00780-005-0170-y

Abstract

In the present paper we provide an analytical solution for pricing discrete barrier options in the Black-Scholes framework.We reduce the valuation problem to a Wiener-Hopf equation that can be solved analytically. We are able to give explicit expressions for the Greeks of the contract. The results from our formulae are compared with those from other numerical methods available in the literature. Very good agreement is obtained, although evaluation using the present method is substantially quicker than the alternative methods presented.

Item Type:Article
Uncontrolled Keywords:Barrier options, discrete monitoring, Wiener-Hopf equation, Black- Scholes, z-transform
Subjects:MSC 2000 > 44 Integral transforms, operational calculus
MSC 2000 > 45 Integral equations
MSC 2000 > 60 Probability theory and stochastic processes
MIMS number:2007.2
Deposited By:Miss Louise Stait
Deposited On:03 January 2007

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