Valuation of FX barrier options under stochastic volatility

David Heath and Eckhard Platen ()

Published Paper Series from Finance Discipline Group, UTS Business School, University of Technology, Sydney

Abstract: This paper describes European-style valuation and hedging procedures for a class of knockout barrier options under stochastic volatility. A pricing framework is established by applying mean self-financing arguments and the minimal equivalent martingale measure. Using appropriate combinations of stochastic numerical and variance reduction procedures we demonstrate that fast and accurate valuations can be obtained for down-and-out call options for the Heston model.

Keywords: Barrier options; stochastic volatility; Monte Carlo simulation; variance reduction (search for similar items in EconPapers)
Pages: 11 pages
Date: 1996-01-01
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Citations: View citations in EconPapers (1)

Published in: Heath, D. and Platen, E., 1996, "Valuation of FX barrier options under stochastic volatility", Asia-Pacific Financial Markets, 3(3), 195-215.

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Persistent link: https://EconPapers.repec.org/RePEc:uts:ppaper:1996-1

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