Pricing Discrete Barrier Options under Stochastic Volatility

Kenichiro Shiraya, Akihiko Takahashi and Toshihiro Yamada
Additional contact information
Kenichiro Shiraya: Mizuho-DL Financial Technology Co., Ltd.
Akihiko Takahashi: Faculty of Economics, University of Tokyo
Toshihiro Yamada: Mitsubishi UFJ Trust Investment Technology Institute Co.,Ltd. (MTEC)

No CARF-F-210, CARF F-Series from Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo

Abstract: This paper proposes a new approximation method for pricing barrier options with discrete monitoring under stochastic volatility environment. In particular, the integration-by-parts formula and the duality formula in Malliavin calculus are effectively applied in pricing barrier options with discrete monitoring. To our knowledge, this paper is the first one that shows an analytical approximation for pricing discrete barrier options with stochastic volatility models. Furthermore, it provides numerical examples for pricing double barrier call options with discrete monitoring under Heston and ă-SABR models.

Pages: 20 pages
Date: 2010-03, Revised 2011-08
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:cfi:fseres:cf210

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