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Hi All,
I am pricing a special double barrier option with finite difference in the BS framework. But I get a little confused when setting up the boundary conditions.
It is a double barrier European put option. The upper barrier is a knock-out barrier, while the lower barrier is a knock-in barrier. KO barrier prevails KI barrier. So whenever the KO barrier is touched, the holder gets nothing. If KO not touched and KI touched, holder get put option payoff at maturity. If both untouched, the holder gets nothing.
In the beginning, I specified the boundary condition at KI barrier asthe value of a vanilla option. But after some thought, I found it was actually pricing a different product, in which KO & KI are equally treated. In this case, the holder receives payoff of a put when the KI is touched earlier even if it touches KO later. This is not I want.
Please kindly help. Best, Henry ------------------------------------------------------------------------------ Learn the latest--Visual Studio 2012, SharePoint 2013, SQL 2012, more! Discover the easy way to master current and previous Microsoft technologies and advance your career. Get an incredible 1,500+ hours of step-by-step tutorial videos with LearnDevNow. Subscribe today and save! http://pubads.g.doubleclick.net/gampad/clk?id=58040911&iu=/4140/ostg.clktrk _______________________________________________ QuantLib-users mailing list [hidden email] https://lists.sourceforge.net/lists/listinfo/quantlib-users |
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Hi Henry,
IMO it seems that this little detail turns it into a plath dependent option.You can use either Monte-Carlo simulations or if you want to stick with FDM then the path dependency adds another dimension to your problem and you'll have to solve a 2d partial differential equation.
regards
Klaus
Haoyun XU <[hidden email]> hat am 28. August 2013 um 04:49 geschrieben: ... [show rest of quote]
------------------------------------------------------------------------------ Learn the latest--Visual Studio 2012, SharePoint 2013, SQL 2012, more! Discover the easy way to master current and previous Microsoft technologies and advance your career. Get an incredible 1,500+ hours of step-by-step tutorial videos with LearnDevNow. Subscribe today and save! http://pubads.g.doubleclick.net/gampad/clk?id=58040911&iu=/4140/ostg.clktrk _______________________________________________ QuantLib-users mailing list [hidden email] https://lists.sourceforge.net/lists/listinfo/quantlib-users |
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Hi Klaus, Thanks for your reply. Yes, it is path-dependent. But it is just weakly path-dependent, like single barrier options. I wish to stick with 1-D PDE. Can I specify the B.C. at KI as the value of a Up&Out put barrier option instead of a vanilla put. Will this account for the KO barrier dominance? What's your opinion?
Best, Henry 2013/8/28 Klaus Spanderen <[hidden email]>
... [show rest of quote] ------------------------------------------------------------------------------ Learn the latest--Visual Studio 2012, SharePoint 2013, SQL 2012, more! Discover the easy way to master current and previous Microsoft technologies and advance your career. Get an incredible 1,500+ hours of step-by-step tutorial videos with LearnDevNow. Subscribe today and save! http://pubads.g.doubleclick.net/gampad/clk?id=58040911&iu=/4140/ostg.clktrk _______________________________________________ QuantLib-users mailing list [hidden email] https://lists.sourceforge.net/lists/listinfo/quantlib-users |
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