Abstract

http://ssrn.com/abstract=984374
 
 

References (24)



 
 

Citations (5)



 


 



Pricing Barrier Options With Square Root Process


Chi-Fai Lo


The Chinese University of Hong Kong

P. H. Yuen


affiliation not provided to SSRN

C. H. Hui


Hong Kong Monetary Authority - Research Department


International Journal of Theoretical and Applied Finance, Vol. 4, No. 5, pp. 805-818, 2001

Abstract:     
The square root constant elasticity of variance (CEV) process has been paid little attention in previous research on valuation of barrier options. In this paper we derive analytical option pricing formulae of up-and-out options with this process using the eigenfunction expansion technique. We develop an efficient algorithm to compute the eigenvalues where the basis functions in the formulae are the confluent hypergeometric functions. The numerical results obtained from the formulae are compared with the corresponding model prices under the Black-Scholes model. We find that the differences in the model prices between the square root CEV model and the Black-Scholes model can be significant as the time to maturity and volatility increases.

Number of Pages in PDF File: 14

Keywords: Barrier options, constant elasticity of variance

JEL Classification: F31, G13

Accepted Paper Series





Download This Paper

Date posted: May 8, 2007  

Suggested Citation

Lo, Chi-Fai and Yuen , P. H. and Hui, C. H., Pricing Barrier Options With Square Root Process. International Journal of Theoretical and Applied Finance, Vol. 4, No. 5, pp. 805-818, 2001. Available at SSRN: http://ssrn.com/abstract=984374

Contact Information

Chi-Fai Lo (Contact Author)
The Chinese University of Hong Kong ( email )
Department of Physics
Shatin, N.T., Hong Kong
China
P. H. Yuen
affiliation not provided to SSRN ( email )
No Address Available
Cho-Hoi Hui
Hong Kong Monetary Authority - Research Department ( email )
Hong Kong
China
Feedback to SSRN


Paper statistics
Abstract Views: 758
Downloads: 213
Download Rank: 83,687
References:  24
Citations:  5

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo5 in 0.312 seconds