A simple and efficient numerical method for pricing discretely monitored early-exercise options

Min Huang and Guo Luo

Papers from arXiv.org

Abstract: We present a simple, fast, and accurate method for pricing a variety of discretely monitored options in the Black-Scholes framework, including autocallable structured products, single and double barrier options, and Bermudan options. The method is based on a quadrature technique, and it employs only elementary calculations and a fixed one-dimensional uniform grid. The convergence rate is $O(1/N^4)$ and the complexity is $O(MN\log N)$, where $N$ is the number of grid points and $M$ is the number of observation dates.

Date: 2019-05, Revised 2019-06
New Economics Papers: this item is included in nep-cmp
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