The Evaluation Of Barrier Option Prices Under Stochastic Volatility
This paperc onsiders the problem o fnumerically evaluating barrier option prices when the dynamics of the underlying are driven by stochastic volatility following the square root process of Heston (1993). We develop a method of lines approach to evaluate the price as well as the delta and gamma of the option. The method is able to effciently handle bothc ontinuously monitored and discretely monitored barrier options and can also handle barrier options with early exercise features. In the latter case, we can calculate the early exercise boundary of an American barrier option in both the continuously and discretely monitored cases.
|Date of creation:||01 Jan 2010|
|Publication status:||Published as: Chiarella, C., Kang, B. and Meyer, G. H., 2012, "The Evaluation Of Barrier Option Prices Under Stochastic Volatility", Computers & Mathematics with Applications, 64(6), 2034-2048.|
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- Carl Chiarella & Boda Kang, 2009. "The Evaluation of American Compound Option Prices Under Stochastic Volatility Using the Sparse Grid Approach," Research Paper Series 245, Quantitative Finance Research Centre, University of Technology, Sydney.
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World Scientific Publishing Co. Pte. Ltd..
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- Hoi Ying Wong & Yue-Kuen Kwok, 2003. "Multi-asset barrier options and occupation time derivatives," Applied Mathematical Finance, Taylor & Francis Journals, vol. 10(3), pages 245-266.
- Carl Chiarella & Boda Kang & Gunter H. Meyer & Andrew Ziogas, 2009. "The Evaluation Of American Option Prices Under Stochastic Volatility And Jump-Diffusion Dynamics Using The Method Of Lines," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 12(03), pages 393-425.
- Carl Chiarella & Boda Kang & Gunter H. Meyer & Andrew Ziogas, 2008. "The Evaluation of American Option Prices Under Stochastic Volatility and Jump-Diffusion Dynamics Using the Method of Lines," Research Paper Series 219, Quantitative Finance Research Centre, University of Technology, Sydney.
- Gao, Bin & Huang, Jing-zhi & Subrahmanyam, Marti, 2000. "The valuation of American barrier options using the decomposition technique," Journal of Economic Dynamics and Control, Elsevier, vol. 24(11-12), pages 1783-1827, October.
- Marti G. Subrahmanyam & Bin Gao & Jing-zhi Huang, 1998. "The Valuation of American Barrier Options Using the Decomposition Technique," New York University, Leonard N. Stern School Finance Department Working Paper Seires 98-067, New York University, Leonard N. Stern School of Business-.
- 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 637-654, May-June. Full references (including those not matched with items on IDEAS)
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