Connecting Discrete and Continuous Path-Dependent Options

M. Broadie, P. Glasserman and S. Kou

Working Papers from Columbia - Graduate School of Business

Abstract: This paper develops methods for relating the prices of discrete- and continuous-time versions of path-dependent options sensitive to external values of the underlying aset. including lookback, barrier, and hindsight options. The relationships take the form of correction terms that can be interpreted as shifting a barrier, a strike, or an external price. These correction terms enable us to use closed-form solutions for continuous option prices to approximate their discrete counterparts.

Keywords: PRICING (search for similar items in EconPapers)
JEL-codes: G12 (search for similar items in EconPapers)
Pages: 34 pages
Date: 1997
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Persistent link: https://EconPapers.repec.org/RePEc:fth:colubu:97-12

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