Very fast algorithm for barrier options

Tian-Shyr Dai*, Yuh Dauh Lyuu

*Corresponding author for this work

Research output: Chapter in Book/Report/Conference proceedingConference contribution

Abstract

A barrier option is an option whose payoff depends on whether the price path of the underlying stock ever reaches certain predetermined price levels called the barriers. A double-barrier option is a barrier option with two barriers. No simple and exact closed-form pricing formula for double-barrier options has been reported in the literature. This paper proposes a novel tree model that can price double-barrier options efficiently and accurately. This tree model achieves the high efficiency by combinatorial techniques and numerical accuracy by hitting the barriers exactly. Numerical experiments are given to verify the superiority of our method.

Original languageEnglish
Title of host publicationWMSCI 2006 - The 10th World Multi-Conference on Systemics, Cybernetics and Informatics, Jointly with the 12th International Conference on Information Systems Analysis and Synthesis, ISAS 2006 - Proc.
Pages306-311
Number of pages6
StatePublished - 1 Dec 2006
Event10th World Multi-Conference on Systemics, Cybernetics and Informatics, WMSCI 2006, Jointly with the 12th International Conference on Information Systems Analysis and Synthesis, ISAS 2006 - Orlando, FL, United States
Duration: 16 Jul 200619 Jul 2006

Publication series

NameWMSCI 2006 - The 10th World Multi-Conference on Systemics, Cybernetics and Informatics, Jointly with the 12th International Conference on Information Systems Analysis and Synthesis, ISAS 2006 - Proc.
Volume6

Conference

Conference10th World Multi-Conference on Systemics, Cybernetics and Informatics, WMSCI 2006, Jointly with the 12th International Conference on Information Systems Analysis and Synthesis, ISAS 2006
CountryUnited States
CityOrlando, FL
Period16/07/0619/07/06

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    Dai, T-S., & Lyuu, Y. D. (2006). Very fast algorithm for barrier options. In WMSCI 2006 - The 10th World Multi-Conference on Systemics, Cybernetics and Informatics, Jointly with the 12th International Conference on Information Systems Analysis and Synthesis, ISAS 2006 - Proc. (pp. 306-311). (WMSCI 2006 - The 10th World Multi-Conference on Systemics, Cybernetics and Informatics, Jointly with the 12th International Conference on Information Systems Analysis and Synthesis, ISAS 2006 - Proc.; Vol. 6).