The evaluation of barrier option prices under stochastic volatility
- Publication Type:
- Journal Article
- Computers and Mathematics with Applications, 2012, 64 (6), pp. 2034 - 2048
- Issue Date:
This paper considers the problem of numerically evaluating barrier option prices when the dynamics of the underlying are driven by stochastic volatility following the square root process of Heston (1993) . We develop a method of lines approach to evaluate the price as well as the delta and gamma of the option. The method is able to efficiently handle both continuously monitored and discretely monitored barrier options and can also handle barrier options with early exercise features. In the latter case, we can calculate the early exercise boundary of an American barrier option in both the continuously and discretely monitored cases. © 2012 Elsevier Ltd. All rights reserved.
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