Article ID Journal Published Year Pages File Type
5099689 Journal of Economic Dynamics and Control 2007 35 Pages PDF
Abstract
In the present paper we provide an analysis of a quadrature method combined with an interpolation procedure for the valuation of discrete barrier options. The convergence of the method is proved and the computational cost is found to be linear in the number of monitoring dates and quadratic in the spatial discretization. Moreover, we provide an estimate of the error for a given computational time budget. Finally, we discuss extensively the empirical performance of the method, including the calculation of the delta and gamma coefficients, and we compare the GBM, CEV and variance gamma (VG) stochastic specifications.
Related Topics
Physical Sciences and Engineering Mathematics Control and Optimization
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