On Pricing of Discrete Barrier Options
نویسنده
چکیده
A barrier option is a derivative contract that is activated or extinguished when the price of the underlying asset crosses a certain level. Most models assume continuous monitoring of the barrier. However, in practice, most, if not all, of the barrier options traded are discretely monitored. Unlike their continuous counterparts, there is essentially no closed form solution available, and even numerical pricing is di¢cult. This paper extends an approximation by Broadie, Glasserman, and Kou (1997) for discretely monitored barrier options by covering more cases and giving a simpler proof. The techniques used here come from sequential analysis, particularly Siegmund and Yuh (1982) and Siegmund (1985).
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