DIGITAL DOUBLE BARRIER OPTIONS: SEVERAL BARRIER PERIODS AND STRUCTURE FLOORS

Sühan Altay (), Stefan Gerhold (), Rainer Haidinger () and Karin Hirhager ()
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Sühan Altay: Vienna University of Technology, Wiedner Hauptstrasse 8–10/105-1, A-1040 Vienna, Austria
Stefan Gerhold: Vienna University of Technology, Wiedner Hauptstrasse 8–10/105-1, A-1040 Vienna, Austria
Rainer Haidinger: Raiffeisen Kapitalanlage-Gesellschaft m.b.H., A-1010 Vienna, Austria
Karin Hirhager: Christian Doppler Laboratory for Portfolio Risk Management, Vienna University of Technology, Wiedner Hauptstrasse 8–10/105-1, A-1040 Vienna, Austria

International Journal of Theoretical and Applied Finance (IJTAF), 2013, vol. 16, issue 08, 1-14

Abstract: We determine the price of digital double barrier options with an arbitrary number of barrier periods in the Black–Scholes model. This means that the barriers are active during some time intervals, but are switched off in between. As an application, we calculate the value of a structure floor for structured notes whose individual coupons are digital double barrier options. This value can also be approximated by the price of a corridor put.

Keywords: Double barrier option; digital option; binary option; structure floor; occupation time; corridor option (search for similar items in EconPapers)
Date: 2013
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DOI: 10.1142/S0219024913500441

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