Posted by
Haoyun XU on
Aug 28, 2013; 2:49am
URL: http://quantlib.414.s1.nabble.com/Boundary-condition-of-a-special-double-barrier-option-tp14502.html
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
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