Böttcher, Albrecht ; Grudsky, Sergei ; Porter, R. Michael : European double-barrier options with a compound Poisson component

Author(s):

Böttcher, Albrecht
Grudsky, Sergei
Porter, R. Michael

Title:

European double-barrier options with a compound Poisson component

Electronic source:

application/pdf

Preprint series:

Technische Universität Chemnitz, Fakultät für Mathematik (Germany). Preprint 13, 2009

Mathematics Subject Classification:

60J75			[ Jump processes ]
47N10			[ Applications in optimization, convex analysis, mathematical programming, economics ]

Abstract:

We consider European double-barrier options for underlyings that are given by the superposition of a Gaussian and a compound Poisson process with discrete values. The determination of the price of such options leads to a Black-Scholes system that is perturbed by a Toeplitz matrix. On the basis of this observation, we design an effective algorithm for the computation of this price. Numerical examples are provided.

Keywords:

double barrier option, L´evy process, compound Poisson process, Toeplitz matrix

Language:

English

Publication time:

7 / 2009