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Pricing of Barrier Options on Underlying Assets with Jump-Diffusion Dynamics: A Mellin Transform Approach

Author

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  • Marianito R. Rodrigo

    (School of Mathematics and Applied Statistics, University of Wollongong, Wollongong, NSW 2522, Australia)

Abstract

A barrier option is an exotic path-dependent option contract where the right to buy or sell is activated or extinguished when the underlying asset reaches a certain barrier price during the lifetime of the contract. In this article we use a Mellin transform approach to derive exact pricing formulas for barrier options with general payoffs and exponential barriers on underlying assets that have jump-diffusion dynamics. With the same approach we also price barrier options on underlying futures contracts.

Suggested Citation

  • Marianito R. Rodrigo, 2020. "Pricing of Barrier Options on Underlying Assets with Jump-Diffusion Dynamics: A Mellin Transform Approach," Mathematics, MDPI, vol. 8(8), pages 1-20, August.
    • Handle: RePEc:gam:jmathe:v:8:y:2020:i:8:p:1271-:d:393805
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    References listed on IDEAS

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    Cited by:

    1. Marianito R. Rodrigo & Ngamta Thamwattana, 2021. "A Unified Analytical Approach to Fixed and Moving Boundary Problems for the Heat Equation," Mathematics, MDPI, vol. 9(7), pages 1-19, March.
    2. Marianito R. Rodrigo, 2021. "Constructing C 0 -Semigroups via Picard Iterations and Generating Functions: An Application to a Black–Scholes Integro-Differential Operator," Mathematics, MDPI, vol. 9(6), pages 1-15, March.

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