Barrier Option Pricing Using Adjusted Transition Probabilities

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OutlineMotivationNew ApproachResultsComparisonWhat is new?1 MotivationThe standard Cox-Ross-Rubinstein Binomial TreePrevious work2 New ApproachAdjusted Binomial (and Trinomial) Tree3 ResultsComparisonWhat is new?G. Barone-Adesi, N. Fusari, J. Theal Barrier Option Pricing Using Adjusted Transition Probabilities
MotivationNew ApproachResultsComparisonWhat is new?Down-out Call Price ApproximationNumber of Time Steps in the TreeS 0 500 1000 3000 5000 Alyt. P.94.0 4.849/4.723 4.814/4.839 4.840/4.880 4.820/4.833 4.864(4.863) (4.864) (4.864) (4.864)93.0 3.667/3.610 3.601/3.634 3.641/3.708 3.654/3.703 3.702(3.700) (3.701) (3.701) (3.702)92.0 2.450/2.526 2.509/2.398 2.507/2.497 2.454/2.464 2.506(2.504) (2.506) (2.506) (2.506)91.0 1.222/1.333 1176/1.155 1.221/1.248 1.224/1.272 1.274— (1.274) (1.275) (1.274)90.1 0.127/0.122 0.129/0.122 0.129/0.124 0.137/0.127 0.129— — — — —90.01 0.012/0.012 0.012/0.012 0.012/0.012 0.012/0.012 0.013— — — —Table: K=100, Vol=25%, rf=10%, T=1, L=90, ()=Ritchken’96.G. Barone-Adesi, N. Fusari, J. Theal Barrier Option Pricing Using Adjusted Transition Probabilities
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Barrier Option Pricing Using Adjusted Transition Probabilities

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