2008/12/24 by Björn Eriksson, Eriksson, Bjorn, Martijn Pistorius +1
Economics, Econometrics and Finance · Mathematics · #Capital Investment and Risk Analysis #Computational Finance (q-fin.CP) #FOS: Economics and business #Stochastic processes and financial applications #Stochastic processes and statistical mechanics
paper · pdf · doi:10.48550/arxiv.0812.4548
openalex publication_date 2008/12/24 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
We present the method of moments approach to pricing barrier-type options when the underlying is modelled by a general class of jump diffusions. By general principles the option prices are linked to certain infinite dimensional linear programming problems. Subsequently approximating those systems by finite dimensional linear programming problems, upper and lower bounds for the prices of such options are found. As numerical illustration we apply the method to the valuation of several barrier-type options (double barrier knockout option, American corridor and double no touch) under a number of different models, including a case with deterministic interest rates, and compare with Monte Carlo simulation results. In all cases we find tight bounds with short execution times. Theoretical convergence results are also provided.