Pricing multi-asset options with an external barrier. (English) Zbl 0987.91030
This paper derives formulas for valuing European options on one or multiple assets in the presence of an external barrier. An external barrier means that there is a stochastic variable which determines whether the option is knocked in or out when the value of the variable is above or below some predetermined level. Here, the barrier level is exponential. A fractional step finite difference scheme is proposed for numerical calculation.
Reviewer: Elias Shiu (Iowa City)
MSC:
| 91B28 | Finance etc. (MSC2000) |
Keywords:
multi-asset options; external barrier; Green’s function; fractional step finite difference schemesReferences:
| [1] | DOI: 10.2307/2330963 · doi:10.2307/2330963 |
| [2] | DOI: 10.1287/mnsc.37.12.1640 · Zbl 0825.90061 · doi:10.1287/mnsc.37.12.1640 |
| [3] | Rich D. R., Options Research 7 pp 267– (1994) |
| [4] | Ritchken P., Winter 199 pp 19– |
| [5] | DOI: 10.1016/0304-405X(82)90011-3 · doi:10.1016/0304-405X(82)90011-3 |
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