Semi-analytic pricing of double barrier options with time-dependent barriers and rebates at hit

Andrey Itkin () and Dmitry Muravey

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Abstract: We continue a series of papers devoted to construction of semi-analytic solutions for barrier options. These options are written on underlying following some simple one-factor diffusion model, but all the parameters of the model as well as the barriers are time-dependent. We managed to show that these solutions are systematically more efficient for pricing and calibration than, eg., the corresponding finite-difference solvers. In this paper we extend this technique to pricing double barrier options and present two approaches to solving it: the General Integral transform method and the Heat Potential method. Our results confirm that for double barrier options these semi-analytic techniques are also more efficient than the traditional numerical methods used to solve this type of problems.

Date: 2020-09, Revised 2020-10
New Economics Papers: this item is included in nep-cmp
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