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|
|Date of revision:|
|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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