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Efficient tree methods for pricing digital barrier options

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  • Elisa Appolloni
  • Andrea Ligori
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    Abstract

    We propose an efficient lattice procedure which permits to obtain European and American option prices under the Black and Scholes model for digital options with barrier features. Numerical results show the accuracy of the proposed method.

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    File URL: http://arxiv.org/pdf/1401.2900
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    Bibliographic Info

    Paper provided by arXiv.org in its series Papers with number 1401.2900.

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    Date of creation: Jan 2014
    Date of revision: Jan 2014
    Handle: RePEc:arx:papers:1401.2900

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    Web page: http://arxiv.org/

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    1. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
    2. Robert C. Merton, 1973. "Theory of Rational Option Pricing," Bell Journal of Economics, The RAND Corporation, vol. 4(1), pages 141-183, Spring.
    3. K. Sandmann & Reimer, M., 1995. "A Discrete Time Approach for European and American Barrier Options," Discussion Paper Serie B 272, University of Bonn, Germany.
    4. Francine Diener & MARC Diener, 2004. "Asymptotics of the price oscillations of a European call option in a tree model," Mathematical Finance, Wiley Blackwell, vol. 14(2), pages 271-293.
    5. Cox, John C. & Ross, Stephen A. & Rubinstein, Mark, 1979. "Option pricing: A simplified approach," Journal of Financial Economics, Elsevier, vol. 7(3), pages 229-263, September.
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