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Pricing double barrier options using Laplace transforms

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Author Info
Antoon Pelsser (ABN-Amro Bank, Structured Products Group , P.O.Box 283 1000 EA Amsterdam, The Netherlands (Tel:)

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Abstract

In this paper we address the pricing of double barrier options. To derive the density function of the first-hit times of the barriers, we analytically invert the Laplace transform by contour integration. With these barrier densities, we derive pricing formulÖfor new types of barrier options: knock-out barrier options which pay a rebate when either one of the barriers is hit. Furthermore we discuss more complicated types of barrier options like double knock-in options.

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Publisher Info
Article provided by Springer in its journal Finance and Stochastics.

Volume (Year): 4 (2000)
Issue (Month): 1 ()
Pages: 95-104
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Handle: RePEc:spr:finsto:v:4:y:2000:i:1:p:95-104

Note: received: August 1997; final version received: October 1998
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Related research
Keywords: Option pricing Laplace transform contour integration

Find related papers by JEL classification:
G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

Cited by:
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  1. Hardy Hulley & Eckhard Platen, 2007. "Laplace Transform Identities for Diffusions, with Applications to Rebates and Barrier Options," Research Paper Series 203, Quantitative Finance Research Centre, University of Technology, Sydney. [Downloadable!]
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