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Multi-piecewise linear double barrier options

Author

Listed:
  • Lee, Hangsuck
  • Lee, Minha
  • Ha, Hongjun

Abstract

A double barrier option offers diverse speculation and risk management opportunities due to its exotic characteristics. An avenue for enhancing its functionality involves considering double barriers with non-standard shapes, moving beyond the conventional flat structure. This paper introduces a multi-piecewise linear double barrier option and derives an explicit pricing formula for it grounded in the analytical probability that the underlying process does not breach the multi-piecewise linear double boundary. Through numerical illustrations, we explore how the configuration of the double barrier influences the option prices.

Suggested Citation

  • Lee, Hangsuck & Lee, Minha & Ha, Hongjun, 2025. "Multi-piecewise linear double barrier options," Finance Research Letters, Elsevier, vol. 75(C).
    • Handle: RePEc:eee:finlet:v:75:y:2025:i:c:s154461232500162x
    DOI: 10.1016/j.frl.2025.106898
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    More about this item

    Keywords

    Brownian motion of piecewise constant drift; Piecewise linear double barrier; Double barrier option;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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