Step double barrier options

Tristan Guillaume ()
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Tristan Guillaume: THEMA - Théorie économique, modélisation et applications - UCP - Université de Cergy Pontoise - Université Paris-Seine - CNRS - Centre National de la Recherche Scientifique

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Abstract: Double barrier options have been traded for a long time in the markets and they are embedded in a variety of popular structured products. However, in their standard form, they lack flexibility inasmuch as they feature a constant barrier level during the entire option life. Step double barrier options overcome this limitation by allowing investors to set the knock-out or knock-in levels they want at the time of their choosing rather than by imposing an arbitrary mathematical form upon the time-varying double barrier. Although step double barrier options are actively traded, no analytical formula is known for their valuation and hedging. In this paper, not only regular step double barrier options are analytically valued, but also more exotic contracts combining periods with and without active barriers as well as step double barrier options written on several assets. Financial properties of these instruments are discussed in comparison with other existing contracts.

Keywords: double barrier option; step barrier (search for similar items in EconPapers)
Date: 2010
Note: View the original document on HAL open archive server: https://hal.science/hal-00924266v1
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Citations: View citations in EconPapers (14)

Published in Journal of Derivatives, 2010, 18 (1), pp.59-80

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00924266

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