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DOI: 10.1007/s00780-005-0170-y Finance Stochast. 10, 126 (2006)

Summary: DOI: 10.1007/s00780-005-0170-y
Finance Stochast. 10, 126 (2006)
c Springer-Verlag 2006
An exact analytical solution
for discrete barrier options
Gianluca Fusai1
, I. David Abrahams2
, Carlo Sgarra3
1 Dipartimento SEMEQ, Universit`a degli Studi del Piemonte Orientale,Via Perrone 18, 28100 Novara,
Italy and Associate Fellow, Financial Options Research Centre, Warwick Business School, UK
(e-mail: gianluca.fusai@eco.unipmn.it)
2 Department of Mathematics, University of Manchester, Oxford Road, Manchester M13 9PL, UK
(e-mail: i.d.abrahams@ma.man.ac.uk)
3 Dipartimento di Matematica, Politecnico di Milano, IV Facolt`a di Ingegneria, Via La Masa 34,
20158 Milano, Italy (e-mail: sgarra@mate.polimi.it)
Abstract. In the present paper we provide an analytical solution for pricing discrete
barrier options in the Black-Scholes framework. We reduce the valuation problem
to a Wiener-Hopf equation that can be solved analytically. We are able to give
explicit expressions for the Greeks of the contract. The results from our formulae
are compared with those from other numerical methods available in the literature.


Source: Abrahams, I. David - Department of Mathematics, University of Manchester


Collections: Mathematics