Multi-piecewise linear double barrier options

Hangsuck Lee, Minha Lee and Hongjun Ha

Finance Research Letters, 2025, vol. 75, issue C

Abstract: A double barrier option offers diverse speculation and risk management opportunities due to its exotic characteristics. An avenue for enhancing its functionality involves considering double barriers with non-standard shapes, moving beyond the conventional flat structure. This paper introduces a multi-piecewise linear double barrier option and derives an explicit pricing formula for it grounded in the analytical probability that the underlying process does not breach the multi-piecewise linear double boundary. Through numerical illustrations, we explore how the configuration of the double barrier influences the option prices.

Keywords: Brownian motion of piecewise constant drift; Piecewise linear double barrier; Double barrier option (search for similar items in EconPapers)
JEL-codes: G13 G22 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:75:y:2025:i:c:s154461232500162x

DOI: 10.1016/j.frl.2025.106898

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