A boundary element method to price time-dependent double barrier options

作者：Ballestra Luca Vincenzo; Pacelli Graziella^*

来源：Applied Mathematics and Computation, 2011, 218(8): 4192-4210.

DOI：10.1016/j.amc.2011.09.050

• Barrier option
• Double barrier
• Time-dependent barrier
• Boundary element method
• Volterra integral equations

In this paper we propose a new method for pricing double-barrier options with moving barriers under the Black-Scholes and the CEV models. First of all, by applying a variational technique typical of the boundary element method, we derive an integral representation of the double-barrier option price in which two of the integrand functions are not given explicitly but must be obtained solving a system of Volterra integral equations of the first kind. Second, we develop an ad hoc numerical method to regularize and solve the system of integral equations obtained. Several numerical experiments are carried out showing that the overall algorithm is extraordinarily fast and accurate, even if the barriers are not differentiable functions. Moreover the numerical method presented in this paper performs significantly better than the finite difference approach.

• 出版日期2011-12-15