On the Valuation of Fader and Discrete Barrier Options in Heston's Stochastic Volatility Model

29 Pages Posted: 3 Dec 2008 Last revised: 16 Dec 2010

See all articles by Susanne Griebsch

Susanne Griebsch

University of Technology, Sydney; Financial Research Network (FIRN)

Uwe Wystup

MathFinance AG; Frankfurt School

Date Written: August 12, 2008

Abstract

We focus on closed-form option pricing in Heston's stochastic volatility model, where closed-form formulas exist only for a few option types. Most of these closed-form solutions are constructed from characteristic functions. We follow this closed-form approach and derive multivariate characteristic functions depending on at least two spot values for different points in time. The derived characteristic functions are used as building blocks to set up (semi-) analytical pricing formulas for exotic options with payoffs depending on finitely many spot values such as fader options and discretely monitored barrier options. We compare our result with different numerical methods and examine accuracy and computational times.

Keywords: Heston model, discrete barrier option, fader option, characteristic function

Suggested Citation

Griebsch, Susanne and Wystup, Uwe, On the Valuation of Fader and Discrete Barrier Options in Heston's Stochastic Volatility Model (August 12, 2008). Available at SSRN: https://ssrn.com/abstract=1310422 or http://dx.doi.org/10.2139/ssrn.1310422

Susanne Griebsch (Contact Author)

University of Technology, Sydney ( email )

Haymarket, Ultimo
PO Box 123
Sydney, NSW 2007
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Uwe Wystup

MathFinance AG ( email )

Schiesshohl 19
Waldems, 65529
Germany
+4970062843462 (Phone)
+4970062843462 (Fax)

HOME PAGE: http://www.mathfinance.com

Frankfurt School ( email )

Sonnemannstra├če 9-11
Frankfurt am Main, 60314
Germany

HOME PAGE: http://www.frankfurt-school.de

Register to save articles to
your library

Register

Paper statistics

Downloads
638
rank
37,834
Abstract Views
2,509
PlumX Metrics