A Numerical Scheme for Expectations with First Hitting Time to Smooth Boundary

Yuji Hishida (), Yuta Ishigaki () and Toshiki Okumura ()
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Yuji Hishida: Mizuho Securities Asia Limited
Yuta Ishigaki: COSMEDIA. CO., LTD
Toshiki Okumura: The Dai-ichi Life Insurance Company, Limited

Asia-Pacific Financial Markets, 2019, vol. 26, issue 4, No 7, 553-565

Abstract: Abstract In the present paper, we propose a numerical scheme to calculate expectations with first hitting time to a given smooth boundary, in view of the application to the pricing of options with non-linear barriers. To attack the problem, we rely on the symmetrization technique in Akahori and Imamura (Quant Finance 14(7):1211–1216, 2014) and Imamura et al. (Monte Carlo Methods Appl 20(4):223–235, 2014), with some modifications. To see the effectiveness, we perform some numerical experiments.

Keywords: Barrier option price; First hitting time; Non-linear smooth boundary; Reflection principle; Symmetrization of multi-dimensional diffusion (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1007/s10690-019-09278-0

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