Efficient Lattice Method for Valuing of Options with Barrier in a Regime Switching Model
We propose an efficient lattice method for valuation of options with barrier in a regime switching model. Specifically, we extend the trinomial tree method of Yuen and Yang (2010) by calculating the local average of prices near a node of the lattice. The proposed method reduces oscillations of the l...
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| Format: | Article |
| Language: | English |
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Wiley
2016-01-01
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| Series: | Discrete Dynamics in Nature and Society |
| Online Access: | http://dx.doi.org/10.1155/2016/2474305 |
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| _version_ | 1832548152495833088 |
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| author | Youngchul Han Geonwoo Kim |
| author_facet | Youngchul Han Geonwoo Kim |
| author_sort | Youngchul Han |
| collection | DOAJ |
| description | We propose an efficient lattice method for valuation of options with barrier in a regime switching model. Specifically, we extend the trinomial tree method of Yuen and Yang (2010) by calculating the local average of prices near a node of the lattice. The proposed method reduces oscillations of the lattice method for pricing barrier options and improves the convergence speed. Finally, computational results for the valuation of options with barrier show that the proposed method with interpolation is more efficient than the other tree methods. |
| format | Article |
| id | doaj-art-c457335056e6429989b2eaf104be049f |
| institution | Kabale University |
| issn | 1026-0226 1607-887X |
| language | English |
| publishDate | 2016-01-01 |
| publisher | Wiley |
| record_format | Article |
| series | Discrete Dynamics in Nature and Society |
| spelling | doaj-art-c457335056e6429989b2eaf104be049f2025-02-03T06:42:00ZengWileyDiscrete Dynamics in Nature and Society1026-02261607-887X2016-01-01201610.1155/2016/24743052474305Efficient Lattice Method for Valuing of Options with Barrier in a Regime Switching ModelYoungchul Han0Geonwoo Kim1Department of Mathematics, Yonsei University, Seoul 120-749, Republic of KoreaDepartment of Mathematical Science, Seoul National University, Seoul 151-747, Republic of KoreaWe propose an efficient lattice method for valuation of options with barrier in a regime switching model. Specifically, we extend the trinomial tree method of Yuen and Yang (2010) by calculating the local average of prices near a node of the lattice. The proposed method reduces oscillations of the lattice method for pricing barrier options and improves the convergence speed. Finally, computational results for the valuation of options with barrier show that the proposed method with interpolation is more efficient than the other tree methods.http://dx.doi.org/10.1155/2016/2474305 |
| spellingShingle | Youngchul Han Geonwoo Kim Efficient Lattice Method for Valuing of Options with Barrier in a Regime Switching Model Discrete Dynamics in Nature and Society |
| title | Efficient Lattice Method for Valuing of Options with Barrier in a Regime Switching Model |
| title_full | Efficient Lattice Method for Valuing of Options with Barrier in a Regime Switching Model |
| title_fullStr | Efficient Lattice Method for Valuing of Options with Barrier in a Regime Switching Model |
| title_full_unstemmed | Efficient Lattice Method for Valuing of Options with Barrier in a Regime Switching Model |
| title_short | Efficient Lattice Method for Valuing of Options with Barrier in a Regime Switching Model |
| title_sort | efficient lattice method for valuing of options with barrier in a regime switching model |
| url | http://dx.doi.org/10.1155/2016/2474305 |
| work_keys_str_mv | AT youngchulhan efficientlatticemethodforvaluingofoptionswithbarrierinaregimeswitchingmodel AT geonwookim efficientlatticemethodforvaluingofoptionswithbarrierinaregimeswitchingmodel |