Questions tagged [barrier]
The barrier tag has no usage guidance.
73
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Pricing Knock Out Barrier Options by solving Black Scholes PDE (MATLAB)
This question is based on MATLAB functions.
Suppose there is a stock S following the process
$dS_t=(r-q)S_tdt+\sigma(S_t,t)dW_t$
r - risk-free rate, q - dividend yield, W - Weiner process
The ...
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0answers
90 views
Pricing an exotic with barrier at discrete times
How would you price the following option on underlying $S$ without dividends?
Time to maturity of option $\tau = 12$ months
Option has a strike $K > 0$ and constant barrier $B > 0$.
$t_0$ is ...
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325 views
What is the vega profile of an up-and-out call option? And why is this important in structuring?
I had this question during an interview but I can't seem to find the answer on the internet.
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718 views
Black-Scholes equation for barrier options
I would like to write down the PDE for the price of an up-and-in call option under the Black-Scholes model as follows. The payoff of the option at expiry $T$ is
$$C_T := \max(S_T-K,0)1_{M_T \geq L}$$
...
0
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1answer
136 views
Barrier option on a basket with arbitrary stochastic process
Suppose I want to price a Down-and-out European call, barrier option. However, the stochastic process is not a gBm or any other Levy process with known structure. Practically, I want a barrier option ...
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2answers
287 views
Valuation of FX vs. Commodities Barrier Options
With reference to my previous question about the computation of a barrier option delta, @LocalVolatility referenced a nice closed form solution to value barrier options on a stock paying a dividend ...
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1answer
131 views
Pricing Secured Barrier Call
A European barrier call with barrier $B = 50$, expiration $T = 31$, and strike $K = 33$ costs $12$. The investor is interested in a product that, unlike this barrier call, offers some protection for ...
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1answer
51 views
Issue in Pricing Barrier Options using MCBarrierEngine in QuantLib Python
Extremely sorry for bugging the community again, but I am struggling with finding proper documentation of QuantLib Python. I am trying to price Barrier Option using MC Simulation. Here is the code:
<...
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1answer
114 views
What is the go-to method for numerical pricing of discrete barriers?
There are tons of methods for pricing discrete barrier options in various models?
What is the go-to "classical" method that is most popular?
Hopefully not Monte Carlo (significant accuracy would ...
0
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1answer
445 views
Down-Out Call and Vanilla call price
We all know from text books and practice that a knock out call is usually cheaper than a vanilla call option. Economically speaking, this comes from the fact that there is a probability bigger than ...
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1answer
129 views
How to price barrier options with making in model-independent way?
I have to use simple no arbitrage arguments to find the price of a barrier option where initial stock price $S_0 = 100$ and barrier/strike $B = K = 80$. Here we don't assume geometric Brownian motion ...
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1answer
272 views
Strange Delta for FX Down And Out Call, Strike below Barrier
Based on this text about FX options on pages 139, 141 and 145 I'm trying to compute the delta of a down and out call with the strike below the barrier. Here is a quick and dirty Python code (I assume ...
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43 views
How to price barrier options under Black-Scholes?
I am looking for a rigorous proof for the closed form of the price of a barrier option (up-in/up-out) under Black-Scholes model, that is a step by step solution of the solution of the heat equation ...
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0answers
22 views
Pricing of a compo with barrier
i am given this exercise where i have to price a compo put option with barrier. For hypotesis the option is an Up In Put, with domestic strike $K^d$, written over a generic foreign stock $S^f=r_t^fdt+...
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38 views
Pricing barrier options with Monte Carlo Simulations
Hey I try to compute barrier option price by Monte Carlo Simulations. It's my code:
...
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0answers
91 views
COS method option pricing
is the cos method used to calculate prices of options other than the European call? Or is this method only used for calibration? Is it possible to evaluate the barrier and lookback options? I am ...
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38 views
How to calculate Greeks for leveraged Barrier options?
I am wondering how to calculate option Greeks for Down-and-out barrier Call options with leverage.
The option characteristics are as follows. The buyer of the option pays a fraction of the spot price <...
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50 views
Barrier option with zero-strike
Good morning, everybody,
I would like to know whether an up-and-out call option with a zero strike has a special name in the list of exotic options or is still a special case of a barrier option..
...
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20 views
Static hedge for Down-and-out put option
I am trying to compute the static hedge for a down-and-out put option with the barrier above the strike using the put-call symmetry. I am okay with the example in the note with the call option but I ...
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0answers
31 views
Initial price of digital option with barrier
Given that $S_0 = 1, u = \frac{5}{4}, d = \frac{4}{5}, r = \frac{1}{40}$:
The payoff of a digital option with a barrier B > S_0 on the running maximum is:
1 if $max\{S_0, ..., S_n\} \geq B$
0 if $...
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0answers
959 views
What exactly does shifting a barrier in a barrier option mean and how does it hedge delta?
How exactly is shifting the barrier to hedge delta implemented in case of barrier options. Is it just changing the barrier, if so, how does it hedge delta or is it making the barrier a range like a ...
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1answer
479 views
Probability of Brownian motion particle touching barrier given path starts at $X_0$ and ends at a known $X_t$
I have been reading Su and Rieger's paper on barriers and from there have been able to work out the unconditional probability of the process $dXt = Ī¼ dt + Ļ dWt$ touching a down barrier $Ī±$ to be
$\...
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1answer
54 views
Clarification on the payoff of a portfolio consisting of a long Up&In Put and short Up&In Call
I am trying to make sense of this example:
I'm not following the second line in red: "If you buy an up-and-in put and sell an up-and-in call, the payoff is the strike price minus the stock price ...
