An efficient algorithm for Bermudan barrier option pricing

An efficient option pricing method based on Fourier-cosine expansions was presented by Fang and Oosterlee for European options in 2008, and later, this method was also used by them to price early-exercise options and barrier options respectively, in 2009. In this paper, this method is applied to pri...

Full description

Saved in:
Bibliographic Details
Published in:Applied Mathematics-A Journal of Chinese Universities 2012-03, Vol.27 (1), p.49-58
Main Authors: Ding, Deng, Huang, Ning-ying, Zhao, Jing-ya
Format: Article
Language:English
Subjects:
Applications of Mathematics
Mathematics
Mathematics and Statistics
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:An efficient option pricing method based on Fourier-cosine expansions was presented by Fang and Oosterlee for European options in 2008, and later, this method was also used by them to price early-exercise options and barrier options respectively, in 2009. In this paper, this method is applied to price discretely American barrier options in which the monitored dates are many times more than the exercise dates. The corresponding algorithm is presented to practical option pricing. Numerical experiments show that this algorithm works very well and efficiently for different exponential Lévy asset models.
ISSN:1005-1031
1993-0445
DOI:10.1007/s11766-012-2516-5