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Multi-asset barrier options and occupation time derivatives

Author

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  • Hoi Ying Wong
  • Yue-Kuen Kwok

Abstract

A general framework is formulated to price various forms of European style multi-asset barrier options and occupation time derivatives with one state variable having the barrier feature. Based on the lognormal assumption of asset price processes, the splitting direction technique is developed for deriving the joint density functions of multi-variate terminal asset prices with provision for single or double barriers on one of the state variables. A systematic procedure is illustrated whereby multi-asset option price formulas can be deduced in a systematic manner as extensions from those of their one-asset counterparts. The formulation has been applied successfully to derive the analytic price formulas of multi-asset options with external two-sided barriers and sequential barriers, multi-asset step options and delayed barrier options. The successful numerical implementation of these price formulas is demonstrated.

Suggested Citation

  • Hoi Ying Wong & Yue-Kuen Kwok, 2003. "Multi-asset barrier options and occupation time derivatives," Applied Mathematical Finance, Taylor & Francis Journals, vol. 10(3), pages 245-266.
    • Handle: RePEc:taf:apmtfi:v:10:y:2003:i:3:p:245-266
    DOI: 10.1080/1350486032000107352
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    Citations

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    Cited by:

    1. Tristan Guillaume, 2011. "Some sequential boundary crossing results for geometric Brownian motion and their applications in financial engineering," Post-Print hal-00924277, HAL.
    2. Sun-Yong Choi & Ji-Hun Yoon & Junkee Jeon, 2019. "Pricing of Fixed-Strike Lookback Options on Assets with Default Risk," Mathematical Problems in Engineering, Hindawi, vol. 2019, pages 1-10, January.
    3. Carl Chiarella & Boda Kang & Gunter H. Meyer, 2010. "The Evaluation Of Barrier Option Prices Under Stochastic Volatility," Research Paper Series 266, Quantitative Finance Research Centre, University of Technology, Sydney.
    4. Kim, Jerim & Kim, Jeongsim & Joo Yoo, Hyun & Kim, Bara, 2015. "Pricing external barrier options in a regime-switching model," Journal of Economic Dynamics and Control, Elsevier, vol. 53(C), pages 123-143.

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