Pricing of Discretely Monitored Barrier Options  Improvement of an Approximation Formula
(2014) In Master's Theses in Mathematical Sciences FMA820 20141Mathematics (Faculty of Engineering)
 Abstract
 There are many different methods for pricing discretely monitored barrier options. There is a tradeoff, however, between speed and accuracy. The players on the financial markets would of course ideally want a method which is both exact and returns a price instantaneously.
In this thesis we start from a fast, but on the other hand somewhat less accurate, approximation formula. It will be referred to as the 0.5826approximation, and was introduced in 1997 by Broadie,Glasserman and Kou [1]. It is one of the option pricing formulas currently used by SunGard. The idea of the 0.5826approximation is to use the analytical pricing formula for the corresponding continuously monitored barrier option, and to use an adjusted barrier in that formula... (More)  There are many different methods for pricing discretely monitored barrier options. There is a tradeoff, however, between speed and accuracy. The players on the financial markets would of course ideally want a method which is both exact and returns a price instantaneously.
In this thesis we start from a fast, but on the other hand somewhat less accurate, approximation formula. It will be referred to as the 0.5826approximation, and was introduced in 1997 by Broadie,Glasserman and Kou [1]. It is one of the option pricing formulas currently used by SunGard. The idea of the 0.5826approximation is to use the analytical pricing formula for the corresponding continuously monitored barrier option, and to use an adjusted barrier in that formula to account for the
decreased probability of a barrier hit.
The purpose of this thesis is to improve the 0.5826approximation for downandout call options with barrier less than or equal to the strike, and in particular to mitigate two problems. (Less)
Please use this url to cite or link to this publication:
http://lup.lub.lu.se/studentpapers/record/4462110
 author
 Andersson, Filip ^{LU} and Ögren, Mikael ^{LU}
 supervisor

 Alexandros Sopasakis ^{LU}
 organization
 course
 FMA820 20141
 year
 2014
 type
 H2  Master's Degree (Two Years)
 subject
 keywords
 Barrier Option, Approximation Formula, Discretely Monitored
 publication/series
 Master's Theses in Mathematical Sciences
 report number
 LUTFMA30612014
 ISSN
 14046342
 other publication id
 2014:E29
 language
 English
 id
 4462110
 date added to LUP
 20140626 11:53:21
 date last changed
 20140704 13:48:11
@misc{4462110, abstract = {{There are many different methods for pricing discretely monitored barrier options. There is a tradeoff, however, between speed and accuracy. The players on the financial markets would of course ideally want a method which is both exact and returns a price instantaneously. In this thesis we start from a fast, but on the other hand somewhat less accurate, approximation formula. It will be referred to as the 0.5826approximation, and was introduced in 1997 by Broadie,Glasserman and Kou [1]. It is one of the option pricing formulas currently used by SunGard. The idea of the 0.5826approximation is to use the analytical pricing formula for the corresponding continuously monitored barrier option, and to use an adjusted barrier in that formula to account for the decreased probability of a barrier hit. The purpose of this thesis is to improve the 0.5826approximation for downandout call options with barrier less than or equal to the strike, and in particular to mitigate two problems.}}, author = {{Andersson, Filip and Ögren, Mikael}}, issn = {{14046342}}, language = {{eng}}, note = {{Student Paper}}, series = {{Master's Theses in Mathematical Sciences}}, title = {{Pricing of Discretely Monitored Barrier Options  Improvement of an Approximation Formula}}, year = {{2014}}, }