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Digital double barrier options: Several barrier periods and structure floors

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  • Suhan Altay
  • Stefan Gerhold
  • Karin Hirhager

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.

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  • Suhan Altay & Stefan Gerhold & Karin Hirhager, 2012. "Digital double barrier options: Several barrier periods and structure floors," Papers 1207.4608, arXiv.org, revised Jul 2012.
    • Handle: RePEc:arx:papers:1207.4608
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    References listed on IDEAS

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    1. Paolo Baldi & Lucia Caramellino & Maria Gabriella Iovino, 1999. "Pricing General Barrier Options: A Numerical Approach Using Sharp Large Deviations," Mathematical Finance, Wiley Blackwell, vol. 9(4), pages 293-321, October.
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