Valuing step barrier options and their icicled variations
- Authors
- Lee, Hangsuck; Ko, Bangwon; Song, Seongjoo
- Issue Date
- 7월-2019
- Publisher
- ELSEVIER SCIENCE INC
- Keywords
- Black-Scholes model; Esscher transform; Step barrier option; Icicled barrier option; Reflection principle
- Citation
- NORTH AMERICAN JOURNAL OF ECONOMICS AND FINANCE, v.49, pp.396 - 411
- Indexed
- SSCI
SCOPUS
- Journal Title
- NORTH AMERICAN JOURNAL OF ECONOMICS AND FINANCE
- Volume
- 49
- Start Page
- 396
- End Page
- 411
- URI
- https://scholar.korea.ac.kr/handle/2021.sw.korea/64622
- DOI
- 10.1016/j.najef.2018.09.001
- ISSN
- 1062-9408
- Abstract
- This paper intends to investigate an interesting class of barrier options, called step barrier options, whose barrier levels are a piecewise constant function of time. These options, while having transparent, simple, and flexible payoff structures, allow for explicit pricing formulas under the Black-Scholes model, and thus can be easily embedded into equity-linked products to enhance the yield or reduce the downside risk. Moreover, the class can be further generalized by attaching vertical branches of barriers to the horizontal one as in Lee and Ko (2018). Using the actuarial method of Esscher transform and the factorization formula, we derive the option pricing formulas under a more general framework with vertical branches attached to horizontal barriers. We explore the formulas through numerical examples, demonstrating their applicability to equity-linked investment with the step barrier option embedded.
- Files in This Item
- There are no files associated with this item.
- Appears in
Collections - College of Political Science & Economics > Department of Statistics > 1. Journal Articles
Items in ScholarWorks are protected by copyright, with all rights reserved, unless otherwise indicated.