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Pricing double barrier options using Laplace transforms

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  • Antoon Pelsser

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

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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Bibliographic 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;

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Cited by:
  1. J. C. Ndogmo & D. B. Ntwiga, 2007. "High-order accurate implicit methods for the pricing of barrier options," Papers 0710.0069, arXiv.org.
  2. 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.
  3. Jean-Pierre Fouque & Sebastian Jaimungal & Matthew Lorig, 2010. "Spectral Decomposition of Option Prices in Fast Mean-Reverting Stochastic Volatility Models," Papers 1007.4361, arXiv.org, revised Apr 2012.
  4. Aleksandar Mijatović, 2010. "Local time and the pricing of time-dependent barrier options," Finance and Stochastics, Springer, vol. 14(1), pages 13-48, January.

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