Discretely monitored lookback and barrier options: a semi-analytical approach

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

Working Papers from HAL

Abstract: All the explicit formulae for the valuation of lookback and barrier options available in the financial literature assume continuous monitoring of the underlying asset. In practice, however, monitoring is always discrete, and the gap between continuously and discretely monitored option values can be very large. In this paper, we provide explicit formulae for discretely monitored lookback and barrier options. They allow for non-constant volatility, interest rate, dividend rate and barrier parameters that vary as step functions of time. They can deal with any number and spacing of monitoring dates. They are not restricted to particular payoffs or strike price specifications. We also provide a simple rule for the numerical integration of these high-dimensional formulae, as well as an efficient interpolation method.

Keywords: option; lookback option; barrier option; discrete monitoring; numerical integration; dimension (search for similar items in EconPapers)
Date: 2006
Note: View the original document on HAL open archive server: https://hal.science/hal-00924251
References: Add references at CitEc
Citations:

Downloads: (external link)
https://hal.science/hal-00924251/document (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:hal:wpaper:hal-00924251

Access Statistics for this paper

More papers in Working Papers from HAL
Bibliographic data for series maintained by CCSD ().