Università della Svizzera italiana

Barrier option pricing using adjusted transition probabilities

Barone-Adesi, Giovanni ; Fusari, Nicola ; Theal, John

In: The journal of derivatives, 2008, vol. 16, no. 2, p. 36-53

In the existing literature on barrier options much effort has been exerted to ensure convergence through placing the barrier in close proximity to, or directly onto, the nodes of the tree lattice. For a variety of barrier option types we show that such a procedure may not be a necessary prerequisite to achieving accurate option price approximations. Using the Kamrad and Ritchken (1991)...

Università della Svizzera italiana

Three essays in option pricing

Fusari, Nicola ; Barone Adesi, Giovanni (Dir.)

Thèse de doctorat : Università della Svizzera italiana, 2009 ; 2009ECO002.

The present work explores the option pricing world under three different perspectives: theoretical models, numerical methods and real options. In the first chapter we develop a novel option pricing model. We define a stochastic volatility process for the underlying evolution using the realized volatility as a proxy of the true but unobservable volatility of the underlying. That reduces...