Analytic Methods for Pricing Double Barrier Options in the Presence of Stochastic Volatility

  • While there exist closed-form solutions for vanilla options in the presence of stochastic volatility for nearly a decade, practitioners still depend on numerical methods - in particular the Finite Difference and Monte Carlo methods - in the case of double barrier options. It was only recently that Lipton proposed (semi-)analytical solutions for this special class of path-dependent options. Although he presents two different approaches to derive these solutions, he restricts himself in both cases to a less general model, namely one where the correlation and the interest rate differential are assumed to be zero. Naturally the question arises, if these methods are still applicable for the general stochastic volatility model without these restrictions. In this paper we show that such a generalization fails for both methods. We will explain why this is the case and discuss the consequences of our results.

Download full text files

Export metadata

  • Export Bibtex
  • Export RIS

Additional Services

Share in Twitter Search Google Scholar
Metadaten
Author:Oliver Faulhaber
URN (permanent link):urn:nbn:de:hbz:386-kluedo-12421
Document Type:Master's Thesis
Language of publication:English
Year of Completion:2002
Year of Publication:2002
Publishing Institute:Technische Universität Kaiserslautern
Granting Institute:Technische Universität Kaiserslautern
Tag:Doppelbarriereoption; Stochastische Volatilität
Double Barrier Option; Stochastic Volatility
Faculties / Organisational entities:Fachbereich Mathematik
DDC-Cassification:510 Mathematik

$Rev: 12793 $