Post by Sapphire Capital on Jul 14, 2008 20:26:55 GMT 4
Implementation of Finite Difference Technique for Exotic Double Barrier Options
PRATIK SHARDA
University of California, Berkeley - Haas School of Business
RAVISHEKAR SUBRAMANIAN
University of California, Berkeley - Haas School of Business
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Abstract:
In this paper, we attempt to price a complex barrier option using Finite Difference (FD) techniques. The focus is to demonstrate the strength of the FD to deal with various seemingly complicated issues like jump diffusion , Early exercise in a relatively easy way and at a lower computational cost compared to the normal Monte Carlo (MC) techniques. The prices were reliable and efficiency gains are benchmarked against the results from a pure Monte Carlo simulation and other analytical values. The paper also deals with issues on implication of dividend incorporation, treatment of boundary conditions, and hedging.
papers.ssrn.com/sol3/papers.cfm?abstract_id=1114388
PRATIK SHARDA
University of California, Berkeley - Haas School of Business
RAVISHEKAR SUBRAMANIAN
University of California, Berkeley - Haas School of Business
--------------------------------------------------------------------------------
Abstract:
In this paper, we attempt to price a complex barrier option using Finite Difference (FD) techniques. The focus is to demonstrate the strength of the FD to deal with various seemingly complicated issues like jump diffusion , Early exercise in a relatively easy way and at a lower computational cost compared to the normal Monte Carlo (MC) techniques. The prices were reliable and efficiency gains are benchmarked against the results from a pure Monte Carlo simulation and other analytical values. The paper also deals with issues on implication of dividend incorporation, treatment of boundary conditions, and hedging.
papers.ssrn.com/sol3/papers.cfm?abstract_id=1114388