Pricing multiasset time‐varying double‐barrier options with time‐dependent parameters

Yuh‐Dauh Lyuu and Yu‐Quan Zhang

Journal of Futures Markets, 2023, vol. 43, issue 3, 404-434

Abstract: This paper proposes the first lattice to price multiasset double‐barrier options when barriers, volatilities, correlations, and interest rates are all time varying. The nodes are strategically placed to both match the volatilities and align with the two barriers per asset for fast convergence. The branching probabilities are provably valid. The size of our lattice is O(nk+1) $O({n}^{k+1})$, where n $n$ is the number of time steps and k $k$ is the number of assets, and is only O(n1+k∕2) $O({n}^{1+k\unicode{x02215}2})$ for continuously monitored double‐barrier knock‐out options.

Date: 2023
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