Modelling exchange-traded barrier options traded in the Australian options market

Steve Easton and Richard Gerlach

Accounting and Finance, 2007, vol. 47, issue 1, pages 109-122

Abstract: Barrier options traded in the Australian market vary considerably in terms of the extent to which the barrier is monitored and in terms of the location of the barrier level relative to the exercise price. This paper examines the impact of these differences on prices and also on deltas and gammas. We find that it is not possible to generalize results concerning hedge parameter values to all barrier options. We find that options examined by Easton "et al". (2004) do not display discontinuity of deltas at the barrier levels and that their apparent overpricing cannot be attributed to hedging difficulties. Copyright (c) The Authors
Journal compilation (c) 2006 AFAANZ.

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