The evaluation of barrier option prices under stochastic volatility

Chiarella, C; Kang, B; Meyer, GH

The evaluation of barrier option prices under stochastic volatility

Chiarella, C Kang, B Meyer, GH

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Publication Type:: Journal Article
Citation:: Computers and Mathematics with Applications, 2012, 64 (6), pp. 2034 - 2048
Issue Date:: 2012-09-01

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Field	Value	Language
dc.contributor.author	Chiarella, C	en_US
dc.contributor.author	Kang, B	en_US
dc.contributor.author	Meyer, GH	en_US
dc.date.issued	2012-09-01	en_US
dc.identifier.citation	Computers and Mathematics with Applications, 2012, 64 (6), pp. 2034 - 2048	en_US
dc.identifier.issn	0898-1221	en_US
dc.identifier.uri	http://hdl.handle.net/10453/22009
dc.description.abstract	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) [7]. 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.	en_US
dc.relation.ispartof	Computers and Mathematics with Applications	en_US
dc.relation.isbasedon	10.1016/j.camwa.2012.03.103	en_US
dc.subject.classification	Numerical & Computational Mathematics	en_US
dc.title	The evaluation of barrier option prices under stochastic volatility	en_US
dc.type	Journal Article
utslib.citation.volume	6	en_US
utslib.citation.volume	64	en_US
utslib.for	0102 Applied Mathematics	en_US
utslib.for	1502 Banking, Finance and Investment	en_US
utslib.for	01 Mathematical Sciences	en_US
utslib.for	15 Commerce, Management, Tourism and Services	en_US
utslib.for	08 Information and Computing Sciences	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
pubs.organisational-group	/University of Technology Sydney/Faculty of Business/Finance Discipline
utslib.copyright.status	closed_access
pubs.issue	6	en_US
pubs.publication-status	Published	en_US
pubs.volume	64	en_US

Abstract:

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) [7]. 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.

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10453/22009