Open AccessPricing Exotic Options Using Some Lattice Procedures
Author(s) -
Sadia Anjum Jumana,
Abm Shahadat Hossain
Publication year - 2021
Publication title -
ganit
Language(s) - English
Resource type - Journals
eISSN - 2224-5111
pISSN - 1606-3694
DOI - 10.3329/ganit.v41i1.55024
Subject(s) - exotic option , trinomial tree , binomial options pricing model , trinomial , lattice (music) , path dependent , barrier option , valuation of options , mathematics , mathematical optimization , computer science , statistical physics , econometrics , discrete mathematics , physics , acoustics
In this work, we discuss some very simple and extremely efficient lattice models, namely, Binomial tree model (BTM) and Trinomial tree model (TTM) for valuing some types of exotic barrier options in details. For both these models, we consider the concept of random walks in the simulation of the path which is followed by the underlying stock price. Our main objective is to estimate the value of barrier options by using BTM and TTM for different time steps and compare these with the exact values obtained by the benchmark Black-Scholes model (BSM). Moreover, we analyze the convergence of these lattice models for these exotic options. All the results have been shown numerically as well as graphically.GANITJ. Bangladesh Math. Soc.41.1 (2021) 26-40