Pricing of Parisian Options for a Jump-Diffusion Model with Two-Sided Jumps

Hansjörg Albrecher, Dominik Kortschak and Xiaowen Zhou

Applied Mathematical Finance, 2012, vol. 19, issue 2, 97-129

Abstract: Using the solution of one-sided exit problem, a procedure to price Parisian barrier options in a jump-diffusion model with two-sided exponential jumps is developed. By extending the method developed in Chesney, Jeanblanc-Picqu� and Yor (1997; Brownian excursions and Parisian barrier options, Advances in Applied Probability , 29(1), pp. 165--184) for the diffusion case to the more general set-up, we arrive at a numerical pricing algorithm that significantly outperforms Monte Carlo simulation for the prices of such products.

Date: 2012
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DOI: 10.1080/1350486X.2011.599976

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