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Classification of barrier options

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  • J. C. Ndogmo

Abstract

For a given level of accuracy in option prices, the paper considers the problem of deciding when exactly, as one or more of the pricing parameters change, a barrier option degenerates into a simpler type of option. This problem is meaningful in the real world where option prices are always determined within a certain level of accuracy. The problem is reduced to finding certain critical values of the initial stock price, and this is achieved through a probability-based approach.

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  • J. C. Ndogmo, 2008. "Classification of barrier options," Papers 0806.4676, arXiv.org.
    • Handle: RePEc:arx:papers:0806.4676
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    References listed on IDEAS

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    1. McConnell, John J & Schwartz, Eduardo S, 1986. "LYON Taming," Journal of Finance, American Finance Association, vol. 41(3), pages 561-576, July.
    2. Robert C. Merton, 2005. "Theory of rational option pricing," World Scientific Book Chapters, in: Sudipto Bhattacharya & George M Constantinides (ed.), Theory Of Valuation, chapter 8, pages 229-288, World Scientific Publishing Co. Pte. Ltd..
    3. J. C. Ndogmo & D. B. Ntwiga, 2007. "High-order accurate implicit methods for the pricing of barrier options," Papers 0710.0069, arXiv.org.
    4. Espen Gaarder Haug, 2001. "Closed Form Valuation Of American Barrier Options," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 4(02), pages 355-359.
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