Barrier option pricing of mean-reverting stock model in uncertain environment

Miao Tian, Xiangfeng Yang and Yi Zhang

Mathematics and Computers in Simulation (MATCOM), 2019, vol. 166, issue C, 126-143

Abstract: The barrier options become activated or extinguished only if the underlying asset’s price reaches a predetermined level. Options of the former case are the knock-in options, and options of the latter case are the knock-out options. Barrier options are a type of path-dependent options which have a big difference from the path-independent options, such as European options and American options. This paper studies the barrier options based on the mean-reverting stock model in uncertain environment. The four types of European barrier options pricing formulas, which are up-and-in call options, down-and-in put options, up-and-out put options, and down-and-out call options, are derived and the corresponding numerical algorithms are designed to compute the prices of these options.

Keywords: Uncertainty theory; Uncertain differential equation; Mean-reverting stock model; Barrier option (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (14)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:matcom:v:166:y:2019:i:c:p:126-143

DOI: 10.1016/j.matcom.2019.04.009

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