A method of moments approach to pricing double barrier contracts driven by a general class of jump diffusions

Bjorn Eriksson and Martijn Pistorius

Papers from arXiv.org

Abstract: We present the method of moments approach to pricing barrier-type options when the underlying is modelled by a general class of jump diffusions. By general principles the option prices are linked to certain infinite dimensional linear programming problems. Subsequently approximating those systems by finite dimensional linear programming problems, upper and lower bounds for the prices of such options are found. As numerical illustration we apply the method to the valuation of several barrier-type options (double barrier knockout option, American corridor and double no touch) under a number of different models, including a case with deterministic interest rates, and compare with Monte Carlo simulation results. In all cases we find tight bounds with short execution times. Theoretical convergence results are also provided.

Date: 2008-12
References: View complete reference list from CitEc
Citations:

Downloads: (external link)
http://arxiv.org/pdf/0812.4548 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:0812.4548

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().