Analysis of quadrature methods for pricing discrete barrier options [An article from: Journal of Economic Dynamics and Control]

by G. Fusai, M.C. Recchioni

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This digital document is a journal article from Journal of Economic Dynamics and Control, published by Elsevier in 2007. The article is delivered in HTML format and is available in your Amazon.com Media Library immediately after purchase. You can view it with any web browser.

Description:
In the present paper we provide an analysis of a quadrature method combined with an interpolation procedure for the valuation of discrete barrier options. The convergence of the method is proved and the computational cost is found to be linear in the number of monitoring dates and quadratic in the spatial discretization. Moreover, we provide an estimate of the error for a given computational time budget. Finally, we discuss extensively the empirical performance of the method, including the calculation of the delta and gamma coefficients, and we compare the GBM, CEV and variance gamma (VG) stochastic specifications.

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