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Barrier Options Pricing With Joint Distribution Of Gaussian Process And Its Maximum

Author

Listed:
  • PINGJIN DENG

    (School of Finance, Nankai University, Tianjin 300350, P. R. China)

  • XIUFANG LI

    (School of Finance, Nankai University, Tianjin 300350, P. R. China)

Abstract

Barrier options are one of the most popular exotic options. In this contribution, we propose a performance barrier option, which is a type of barrier option defined with the Nth period logarithm return rate process on an underlying asset over the time interval [0,T], N ≤ T ≤ 2N. We show that the price of this performance barrier option is determined by the joint distribution of a Slepian process and its maximum. Furthermore, we derive a tractable formula for this joint distribution and obtain explicit formulas for the up-out-call performance option and up-out-put performance option.

Suggested Citation

  • Pingjin Deng & Xiufang Li, 2017. "Barrier Options Pricing With Joint Distribution Of Gaussian Process And Its Maximum," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 20(06), pages 1-18, September.
    • Handle: RePEc:wsi:ijtafx:v:20:y:2017:i:06:n:s021902491750042x
    DOI: 10.1142/S021902491750042X
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    References listed on IDEAS

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