Two-Asset Double Barrier Options

Hangsuck Lee, Hongjun Ha, Gaeun Lee and Byungdoo Kong ()
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Hangsuck Lee: Sungkyunkwan University
Hongjun Ha: Korea University
Gaeun Lee: National Pension Research Institute
Byungdoo Kong: University of California

Computational Economics, 2025, vol. 66, issue 2, No 4, 1106 pages

Abstract: Abstract In this paper, we explore the pricing of two-asset double barrier options. These options feature two double barriers, each corresponding to one of the two underlying assets within a specific time subinterval. They are useful for reducing premiums, hedging, and aligning with investor expectations regarding asset prices. However, pricing these options is challenging due to the assumed correlation between the two asset prices. We derive the non-crossing probability of two-dimensional Brownian motion for non-overlapping double boundaries and use it to establish analytic pricing formulas for two-asset non-overlapping double barrier options. Furthermore, we present a semi-analytic method for pricing a two-asset overlapping double barrier option. Through numerical experiments, we examine the characteristics of option prices and demonstrate the efficiency of the semi-analytic method.

Keywords: Double barrier options; Overlapping double boundaries; Non-overlapping double boundaries; Non-crossing probability; Two-dimensional Brownian motion (search for similar items in EconPapers)
JEL-codes: G13 G22 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s10614-024-10695-1

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