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Method Of Moments Approach To Pricing Double Barrier Contracts In Polynomial Jump-Diffusion Models

Author

Listed:
  • BJORN ERIKSSON

    (Department of Mathematics, Imperial College London, South Kensington Campus, London SW7 2AZ, UK)

  • MARTIJN PISTORIUS

    (Department of Mathematics, Imperial College London, South Kensington Campus, London SW7 2AZ, UK)

Abstract

We present a method of moments approach to pricing double barrier contracts when the underlying is modelled by a polynomial jump-diffusion. By general principles the price is linked to certain infinite dimensional linear programming problems. Subsequently approximating these by finite dimensional linear programming problems, upper and lower bounds for the prices of such options are found. We derive theoretical convergence results for this algorithm, and provide numerical illustrations by applying the method to the valuation of several double barrier-type contracts (double barrier knock-out call, American corridor and double-no-touch options) under a number of different models, also allowing for a deterministic short rate.

Suggested Citation

  • Bjorn Eriksson & Martijn Pistorius, 2011. "Method Of Moments Approach To Pricing Double Barrier Contracts In Polynomial Jump-Diffusion Models," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 14(07), pages 1139-1158.
    • Handle: RePEc:wsi:ijtafx:v:14:y:2011:i:07:n:s0219024911006644
    DOI: 10.1142/S0219024911006644
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    Citations

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    Cited by:

    1. Tong, Zhigang & Liu, Allen, 2022. "Pricing variance swaps under subordinated Jacobi stochastic volatility models," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 593(C).
    2. Pierre-Edouard Arrouy & Sophian Mehalla & Bernard Lapeyre & Alexandre Boumezoued, 2020. "Jacobi Stochastic Volatility factor for the Libor Market Model," Working Papers hal-02468583, HAL.
    3. Damien Ackerer & Damir Filipovic & Sergio Pulido, 2017. "The Jacobi Stochastic Volatility Model," Working Papers hal-01338330, HAL.
    4. Damien Ackerer & Damir Filipović & Sergio Pulido, 2018. "The Jacobi stochastic volatility model," Finance and Stochastics, Springer, vol. 22(3), pages 667-700, July.
    5. Damir Filipovic & Damien Ackerer & Sergio Pulido, 2018. "The Jacobi Stochastic Volatility Model," Post-Print hal-01338330, HAL.
    6. Pierre-Edouard Arrouy & Alexandre Boumezoued & Bernard Lapeyre & Sophian Mehalla, 2022. "Jacobi stochastic volatility factor for the LIBOR market model," Finance and Stochastics, Springer, vol. 26(4), pages 771-823, October.
    7. He, Yue & Kawai, Reiichiro, 2022. "Moment and polynomial bounds for ruin-related quantities in risk theory," European Journal of Operational Research, Elsevier, vol. 302(3), pages 1255-1271.
    8. Damien Ackerer & Damir Filipovi'c & Sergio Pulido, 2016. "The Jacobi Stochastic Volatility Model," Papers 1605.07099, arXiv.org, revised Mar 2018.

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