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THE BINOMIAL INTERPOLATED LATTICE METHOD FOR STEP DOUBLE BARRIER OPTIONS

ELISA APPOLLONI

MEMOTEF, Università di Roma Sapienza, Via del Castro Laurenziano 9, Roma, Italy

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MARCELLINO GAUDENZI

Dipartimento di Scienze Economiche e Statistiche, Università di Udine, Via Tomadini 30/A, Udine, Italy

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ANTONINO ZANETTE

Dipartimento di Scienze Economiche e Statistiche, Università di Udine, Via Tomadini 30/A, Udine, Italy

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https://doi.org/10.1142/S0219024914500356Cited by:4 (Source: Crossref)

Abstract

We consider the problem of pricing step double barrier options with binomial lattice methods. We introduce an algorithm, based on interpolation techniques, that is robust and efficient, that treats the "near barrier" problem for double barrier options and permits the valuation of step double barrier options with American features. We provide a complete convergence analysis of the proposed lattice algorithm in the European case.

Keywords:

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