Discrete Partial Barrier Options with a Moving Barrier
Posted: 1 Jun 2001
Abstract
Barrier options come in many forms. In this article we study the pricing of discrete partial barrier options where the barrier level may change deterministically during the monitoring period and monitoring takes place at not-necessarily equally spaced points in time. We provide closed-form pricing formulas for the prices of these options in a Black-Scholes (1973) world. Using these results, we show that monitoring the reference index discretely instead of continuously may have a very significant effect on the prices of barrier options.
JEL Classification: G13
Suggested Citation: Suggested Citation
Kat, Harry M. and Heynen, Ronald C., Discrete Partial Barrier Options with a Moving Barrier. Journal of Financial Engineering, Vol. 5, No. 3, September 1996, Cass Business School Research Paper, Available at SSRN: https://ssrn.com/abstract=265010
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