This paper examines the relationship between option pricing models that use stochastic dominance concepts in discrete time, and the traditional arbitrage-based continuous time models. It derives multiperiod discrete time index option bounds based on stochastic dominance considerations for a risk-averse investor holding only the underlying asset, the riskless asset and (possibly) the option for ...

Abstract This article deals with the pricing of double-barrier options monitored discretely. A continuity correction method is established to provide an analytical approximation for price such discrete under Black–Scholes model. We achieve this by applying smooth-fit principle simultaneously two flat boundaries (barriers) associated. The resulting form still involves adjustments in levels barri...

We use the maximum likelihood (ML) estimation approach to estimate the default barriers from market values of equities for a sample of 762 public industrial Canadian firms. The ML approach allows us to estimate the asset instantaneous drift, volatility and barrier level simultaneously, when the firm’s equity is priced as a Down-and-Out European call (DOC) option. We find that the estimated barr...

We describe the automatic generation of nite diierence codes for solving the Black-Scholes and related equations for option valuation using the SciNapse software synthesis system. Analysts can specify codes at a very high level that mirrors the mathematical description of the problem. A typical option pricing speciication occupies less than a half page. From such concise input, the system autom...

By extending the GARCH option pricing model of Duan (1995) to more exible volatility estimation it is shown that the prices of out-of-the-money options strongly depend on volatility features such as asymmetry. Results are provided for the properties of the stationary pricing distribution in the case of a threshold GARCH model. For a stock index series with a pronounced leverage eeect, simulated...

Double barrier options have become popular instruments in derivative markets. Several papers have already analysed double knock-out call and put options using di erent methods. In a recent paper, Geman and Yor (1996) derive expressions for the Laplace transform of the double barrrier option price. However, they have to resort to numerical inversion of the Laplace transform to obtain option pric...