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Pricing of Double Barrier Options by Spectral Theory

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  • Dell'Era Mario, M.D.

Abstract

We propose to discuss the efficiency of the spectral method for computing the value of Double Barrier Options. Using this method, one may write the option price as a Fourier series, with suitable coefficients. We propose a simple approach for its computing. One consider the general case, in which the volatility is time dependent, but it is immediate extend our methodology also in the case of constant volatility. The advantage to write the arbitrage price of the Double Barrier Options as Fourier series, is matter of computation complexity. The methods used to evaluate options of this kind have a high value of computation complexity, furthermore, them have not the capacity to manage it, while using our method, one can define, through an easy analytical report, the computation complexity of the problem, and also one can choice its accuracy.

Suggested Citation

  • Dell'Era Mario, M.D., 2008. "Pricing of Double Barrier Options by Spectral Theory," MPRA Paper 17502, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:17502
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Options Pricing; Computation Complexity.;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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