A matched asymptotic expansions approach to continuity corrections for discretely sampled options. Part 1: barrier options.
We discuss the `continuity correction' that should be applied to relate the prices of discretely sampled barrier options and their continuously-sampled equivalents. Using a matched asymptotic expansions approach we show that the correction of Broadie, Glasserman & Kou (Mathematical Fina...
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| Format: | Journal article |
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2005
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| _version_ | 1826273978357907456 |
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| author | Howison, S Steinberg, M |
| author_facet | Howison, S Steinberg, M |
| author_sort | Howison, S |
| collection | OXFORD |
| description | We discuss the `continuity correction' that should be applied to relate the prices of discretely sampled barrier options and their continuously-sampled 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. |
| first_indexed | 2024-03-06T22:36:27Z |
| format | Journal article |
| id | oxford-uuid:5a100743-40a7-4ff8-a607-354bae154cc0 |
| institution | University of Oxford |
| last_indexed | 2024-03-06T22:36:27Z |
| publishDate | 2005 |
| record_format | dspace |
| spelling | oxford-uuid:5a100743-40a7-4ff8-a607-354bae154cc02022-03-26T17:13:30ZA matched asymptotic expansions approach to continuity corrections for discretely sampled options. Part 1: barrier options.Journal articlehttp://purl.org/coar/resource_type/c_dcae04bcuuid:5a100743-40a7-4ff8-a607-354bae154cc0Mathematical Institute - ePrints2005Howison, SSteinberg, MWe discuss the `continuity correction' that should be applied to relate the prices of discretely sampled barrier options and their continuously-sampled 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. |
| spellingShingle | Howison, S Steinberg, M A matched asymptotic expansions approach to continuity corrections for discretely sampled options. Part 1: barrier options. |
| title | A matched asymptotic expansions approach to continuity corrections for discretely sampled options. Part 1: barrier options. |
| title_full | A matched asymptotic expansions approach to continuity corrections for discretely sampled options. Part 1: barrier options. |
| title_fullStr | A matched asymptotic expansions approach to continuity corrections for discretely sampled options. Part 1: barrier options. |
| title_full_unstemmed | A matched asymptotic expansions approach to continuity corrections for discretely sampled options. Part 1: barrier options. |
| title_short | A matched asymptotic expansions approach to continuity corrections for discretely sampled options. Part 1: barrier options. |
| title_sort | matched asymptotic expansions approach to continuity corrections for discretely sampled options part 1 barrier options |
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