Download This PaperAccurate Pricing of Continuous Barrier Options with Local Volatility
22 Pages Posted: 25 May 2011
Date Written: May 25, 2011
Abstract
In this paper we develop accurate technics to price continuous barrier options using a one dimensional finite difference scheme, allowing for time dependent drift as well as time and state dependent volatilities. We provide numerical examples which demonstrate the smoothness and accuracy of such methods in the Black-Scholes context as well as in the Dupire Local Volatility model.
Keywords: Barrier Option, Finite Difference, Local Volatility, Smoothing
Suggested Citation: Suggested Citation
Chibane, Messaoud, Accurate Pricing of Continuous Barrier Options with Local Volatility (May 25, 2011). Available at SSRN: https://ssrn.com/abstract=1852086 or http://dx.doi.org/10.2139/ssrn.1852086
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