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

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