Interest rate barrier options
- Barone-Adesi, Giovanni Istituto di finanza (IFin), Facoltà di scienze economiche, Università della Svizzera italiana, Svizzera
- Sorwar, Ghulam Istituto di finanza (IFin), Facoltà di scienze economiche, Università della Svizzera italiana, Svizzera
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2002
20 p
English
Less expensive than standard options, barrier options have become very popular in recent years as useful hedging instruments for risk management strategies. Thus far valuation approaches have largely focused on equity barrier options, where in certain instances analytical expressions may be available. In this paper we use Monte Carlo procedure to value barrier options based on the Chan, Karolyi, Longstaff and Sanders interest rate process. By performing simulations with and without including the recently suggested Sharp Large Deviations, we show that standard Monte Carlo procedure substantially misprices barrier options.
- Language
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- English
- Classification
- Economics
- License
-
License undefined
- Open access status
- green
- Identifiers
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- RERO DOC 5233
- ARK ark:/12658/srd1318001
- Persistent URL
- https://n2t.net/ark:/12658/srd1318001
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