An exact analytical solution for discrete barrier options

Gianluca Fusai (), I. Abrahams () and Carlo Sgarra ()

Finance and Stochastics, 2006, vol. 10, issue 1, 26 pages

Abstract: In the present paper we provide an analytical solution for pricing discrete barrier options in the Black-Scholes framework. We reduce the valuation problem to a Wiener-Hopf equation that can be solved analytically. We are able to give explicit expressions for the Greeks of the contract. The results from our formulae are compared with those from other numerical methods available in the literature. Very good agreement is obtained, although evaluation using the present method is substantially quicker than the alternative methods presented. Copyright Springer-Verlag Berlin/Heidelberg 2006

Keywords: Barrier options; discrete monitoring; Wiener-Hopf equation; Black-Scholes; z-transform (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (35)

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DOI: 10.1007/s00780-005-0170-y

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