Discrete Partial Barrier Options with a Moving Barrier

Posted: 1 Jun 2001

See all articles by Harry M. Kat

Harry M. Kat

Independent

Ronald C. Heynen

Bank of America - Market Risk Management

Abstract

Barrier options come in many forms. In this article we study the pricing of discrete partial barrier options where the barrier level may change deterministically during the monitoring period and monitoring takes place at not-necessarily equally spaced points in time. We provide closed-form pricing formulas for the prices of these options in a Black-Scholes (1973) world. Using these results, we show that monitoring the reference index discretely instead of continuously may have a very significant effect on the prices of barrier options.

JEL Classification: G13

Suggested Citation

Kat, Harry M. and Heynen, Ronald C., Discrete Partial Barrier Options with a Moving Barrier. Journal of Financial Engineering, Vol. 5, No. 3, September 1996; Cass Business School Research Paper. Available at SSRN: https://ssrn.com/abstract=265010

Harry M. Kat (Contact Author)

Independent

No Address Available

Ronald C. Heynen

Bank of America - Market Risk Management ( email )

1 Alie Street
London E1 8DE
United Kingdom

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