We consider in this article the arbitrage free pricing of double knock-out barrier options with payoffs that are arbitrary functions of the underlying asset, where we allow exponentially time-varying barrier levels in an otherwise standard Black—Scholes model. Our approach, reminiscent of the method of images of electromagnetics, considerably simplifies the derivation of analytical formulae for this class of exotics by reducing the pricing of any double-barrier problem to that of pricing a related European option.

Structuring, Pricing and Hedging Double-Barrier Step Options — Northwestern Scholars

We illustrate the method by reproducing the well-known formulae of Kunitomo and Ikeda Kunitomo, N. Pricing options with curved boundaries. Mathematical Finance , 2: We give an explanation for the rapid rate of convergence of the doubly infinite sums for affine payoffs in the stock price, as encountered in the pricing of double-barrier call and put options first observed by Kunitomo and Ikeda Kunitomo, N.

PRICING AND HEDGING DOUBLE-BARRIER OPTIONS: A PROBABILISTIC APPROACH - Geman - - Mathematical Finance - Wiley Online Library

Issue Purchase 30 days access for EUR , Article Purchase 24 hours access for EUR 35, Journal Applied Mathematical Finance Volume 16, - Issue 6. Submit an article Journal homepage. Received 15 May Log in via your institution Shibboleth OpenAthens.

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A New Approach to Pricing Double-Barrier Options with Arbitrary Payoffs and Exponential Boundaries: Applied Mathematical Finance: Vol 16, No 6

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