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- Title
ADAPTIVE MESH MODELING AND BARRIER OPTION PRICING UNDER A JUMP-DIFFUSION PROCESS.
- Authors
Albert, Michael; Fink, Jason; Fink, Kristin E.
- Abstract
The computational burden of numerical barrier option pricing is significant, even prohibitive, for some parameterizations—especially for more realistic models of underlying asset behavior, such as jump diffusions. We extend a binomial jump diffusion pricing algorithm into a trinomial setting and demonstrate how an adaptive mesh may fit into the model. Our result is a barrier option pricing method that employs fewer computational resources, reducing run times substantially. We demonstrate that this extension allows the pricing of options that were previously computationally infeasible and examine the parameterizations in which use of the adaptive mesh is most beneficial.
- Subjects
MATHEMATICAL models of option; PRICING; JUMP processes; NUMERICAL analysis; ALGORITHMS; PARAMETER estimation
- Publication
Journal of Financial Research, 2008, Vol 31, Issue 4, p381
- ISSN
0270-2592
- Publication type
Article
- DOI
10.1111/j.1475-6803.2008.00244.x