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Digital Double Barrier Options: Several Barrier Periods And Structure Floors

Author

Listed:
  • SÜHAN ALTAY

    (Vienna University of Technology, Wiedner Hauptstrasse 8–10/105-1, A-1040 Vienna, Austria)

  • STEFAN GERHOLD

    (Vienna University of Technology, Wiedner Hauptstrasse 8–10/105-1, A-1040 Vienna, Austria)

  • RAINER HAIDINGER

    (Raiffeisen Kapitalanlage-Gesellschaft m.b.H., A-1010 Vienna, Austria)

  • KARIN HIRHAGER

    (Christian Doppler Laboratory for Portfolio Risk Management, Vienna University of Technology, Wiedner Hauptstrasse 8–10/105-1, A-1040 Vienna, Austria)

Abstract

We determine the price of digital double barrier options with an arbitrary number of barrier periods in the Black–Scholes model. This means that the barriers are active during some time intervals, but are switched off in between. As an application, we calculate the value of a structure floor for structured notes whose individual coupons are digital double barrier options. This value can also be approximated by the price of a corridor put.

Suggested Citation

  • Sühan Altay & Stefan Gerhold & Rainer Haidinger & Karin Hirhager, 2013. "Digital Double Barrier Options: Several Barrier Periods And Structure Floors," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 16(08), pages 1-14.
    • Handle: RePEc:wsi:ijtafx:v:16:y:2013:i:08:n:s0219024913500441
    DOI: 10.1142/S0219024913500441
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