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Brownian excursions in a corridor and related Parisian options

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  • Dassios, Angelos
  • Wu, Shanle

Abstract

In this paper, we study the excursion time of a Brownian motion with drift inside a corridor by using a four states semi-Markov model. In mathematical finance these results have an important application in the valuation of options whose prices depend on the time their underlying assets prices spend between two different values. In this paper, we introduce the Parisian corridor option and obtain an explicit expression for the Laplace transform of its price formula.

Suggested Citation

  • Dassios, Angelos & Wu, Shanle, 2011. "Brownian excursions in a corridor and related Parisian options," LSE Research Online Documents on Economics 32042, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:32042
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    File URL: http://eprints.lse.ac.uk/32042/
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    Cited by:

    1. Angelos Dassios & You You Zhang, 2016. "The joint distribution of Parisian and hitting times of Brownian motion with application to Parisian option pricing," Finance and Stochastics, Springer, vol. 20(3), pages 773-804, July.
    2. Yangyang Zhuang & Pan Tang, 2023. "Pricing of American Parisian option as executive option based on the least‐squares Monte Carlo approach," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 43(10), pages 1469-1496, October.

    More about this item

    Keywords

    excursion time; four states Semi-Markov model; Parisian corridor options; Laplace transform;
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    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General

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