A matched asymptotic expansions approach to continuity corrections for discretely sampled options. Part 1: barrier options
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چکیده
We discuss the ‘continuity correction’ that should be applied to relate the prices of discretely sampled barrier options and their continuouslysampled equivalents. Using a matched asymptotic expansions approach we show that the correction of Broadie, Glasserman & Kou (Mathematical Finance 7, 325 (1997)) can be applied in a very wide variety of cases. We calculate the correction to higher order in terms of the expansion parameter (the scaled time between resets) and we show how to apply the correction in jump-diffusion and local volatility models.
منابع مشابه
A matched asymptotic expansions approach to continuity corrections for discretely sampled options. Part 2: Bermudan options
We discuss the ‘continuity correction’ that should be applied to connect the prices of discretely sampled American put options (i.e. Bermudan options) and their continuously-sampled equivalents. Using a matched asymptotic expansions approach we compute the correction and relate it to that discussed by Broadie, Glasserman & Kou (Mathematical Finance 7, 325 (1997)) for barrier options. In the Ber...
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تاریخ انتشار 2005