Abstract
External barrier options are two-asset options where the payoff is defined on one asset and the barrier is defined on another asset. In this paper, we derive the Laplace transforms of the prices and deltas for the external single and double barrier options where the underlying asset prices follow a regime-switching model with finite regimes. The derivation is made possible because we can obtain the joint Laplace transform of the first passage time of one asset value and the value of the other asset. Numerical inversion of the Laplace transforms is used to calculate the prices of external barrier options.
| Original language | English |
|---|---|
| Pages (from-to) | 123-143 |
| Number of pages | 21 |
| Journal | Journal of Economic Dynamics and Control |
| Volume | 53 |
| DOIs | |
| Publication status | Published - 2015 Apr 1 |
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Keywords
- External barrier option
- First passage time
- Laplace transform
- Option price
- Regime-switching
- Sylvester matrix equation
ASJC Scopus subject areas
- Economics and Econometrics
- Control and Optimization
- Applied Mathematics
Cite this
Pricing external barrier options in a regime-switching model. / Kim, Jerim; Kim, Jeongsim; Joo Yoo, Hyun; Kim, Bara.
In: Journal of Economic Dynamics and Control, Vol. 53, 01.04.2015, p. 123-143.Research output: Contribution to journal › Article
}
TY - JOUR
T1 - Pricing external barrier options in a regime-switching model
AU - Kim, Jerim
AU - Kim, Jeongsim
AU - Joo Yoo, Hyun
AU - Kim, Bara
PY - 2015/4/1
Y1 - 2015/4/1
N2 - External barrier options are two-asset options where the payoff is defined on one asset and the barrier is defined on another asset. In this paper, we derive the Laplace transforms of the prices and deltas for the external single and double barrier options where the underlying asset prices follow a regime-switching model with finite regimes. The derivation is made possible because we can obtain the joint Laplace transform of the first passage time of one asset value and the value of the other asset. Numerical inversion of the Laplace transforms is used to calculate the prices of external barrier options.
AB - External barrier options are two-asset options where the payoff is defined on one asset and the barrier is defined on another asset. In this paper, we derive the Laplace transforms of the prices and deltas for the external single and double barrier options where the underlying asset prices follow a regime-switching model with finite regimes. The derivation is made possible because we can obtain the joint Laplace transform of the first passage time of one asset value and the value of the other asset. Numerical inversion of the Laplace transforms is used to calculate the prices of external barrier options.
KW - External barrier option
KW - First passage time
KW - Laplace transform
KW - Option price
KW - Regime-switching
KW - Sylvester matrix equation
UR - http://www.scopus.com/inward/record.url?scp=84925206389&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=84925206389&partnerID=8YFLogxK
U2 - 10.1016/j.jedc.2015.02.007
DO - 10.1016/j.jedc.2015.02.007
M3 - Article
AN - SCOPUS:84925206389
VL - 53
SP - 123
EP - 143
JO - Journal of Economic Dynamics and Control
JF - Journal of Economic Dynamics and Control
SN - 0165-1889
ER -