Barrier options are becoming more popular, mainly due to the reduced cost to hold a
barrier option when compared to holding a standard call/put options, but exotic options
are difficult to price since the payoff functions depend on the whole path of the underlying
process, rather than on its value at a specific time instant.
It is a path dependent option, which implies that the payoff depends on the path followed by
the price of the underlying asset, meaning that barrier options prices are especially sensitive
to volatility.
For basic exchange traded options, analytical prices, based on the Black-Scholes formula,
can be computed. These prices are influenced by supply and demand. There is not always
an analytical solution for an exotic option. Hence it is advantageous to have methods that
efficiently provide accurate numerical solutions. This study gives a literature overview and
compares implementation of some available numerical methods applied to barrier options.
The three numerical methods that will be adapted and compared for the pricing of barrier
options are: • Binomial Tree Methods • Monte-Carlo Methods • Finite Difference Methods / Thesis (MSc (Applied Mathematics))--North-West University, Potchefstroom Campus, 2013
| Identifer | oai:union.ndltd.org:netd.ac.za/oai:union.ndltd.org:nwu/oai:dspace.nwu.ac.za:10394/8672 |
| Date | January 2013 |
| Creators | De Ponte, Candice Natasha |
| Publisher | North-West University |
| Source Sets | South African National ETD Portal |
| Language | English |
| Detected Language | English |
| Type | Thesis |
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