Valuation of FX barrier options under stochastic volatility |
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Authors: | David Heath Eckhard Platen |
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Institution: | (1) Centre for Financial Mathematics, Australian National University, SMS, 0200 Canberra, ACT, Australia |
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Abstract: | This paper describes European-style valuation and hedging procedures for a class of knockout barrier options under stochastic
volatility. A pricing framework is established by applying mean self-financing arguments and the minimal equivalent martingale
measure. Using appropriate combinations of stochastic numerical and variance reduction procedures we demonstrate that fast
and accurate valuations can be obtained for down-and-out call options for the Heston model. |
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Keywords: | Barrier options stochastic volatility Monte Carlo simulation variance reduction |
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