Title :
Sensitivity analysis for barrier options
Author :
Wang, Yongqiang ; Fu, Michael C. ; Marcus, Steven I.
Author_Institution :
Dept. of Electr. & Comput. Eng., Univ. of Maryland, College Park, MD, USA
Abstract :
Barrier options are popular derivative securities with payoffs dependent on whether or not an underlying asset crosses a barrier. This paper presents a Monte Carlo simulation-based method of sensitivity analysis for barrier options based on smoothed perturbation analysis (SPA) for a general form of discontinuous sample function payoffs. The connection between the resulting SPA estimator and the probability formula derived in Hong (2008) and its generalization in Liu and Hong (2009) is explored. Using a Brownian bridge result, the estimator is applied to continuously-monitored barrier options with rebates. Illustrative simulation examples are provided.
Keywords :
Monte Carlo methods; pricing; probability; share prices; Monte Carlo simulation based method; continuously monitored barrier options; derivative securities; option pricing; probability formula; sensitivity analysis; smoothed perturbation analysis; Analytical models; Bridges; Computational modeling; Computer security; Educational institutions; Finance; Monte Carlo methods; Pricing; Sensitivity analysis; Stochastic processes;
Conference_Titel :
Simulation Conference (WSC), Proceedings of the 2009 Winter
Conference_Location :
Austin, TX
Print_ISBN :
978-1-4244-5770-0
DOI :
10.1109/WSC.2009.5429560
