Local time and the pricing of time-dependent barrier options

  title={Local time and the pricing of time-dependent barrier options},
  author={Aleksandar Mijatovic},
  journal={Finance and Stochastics},
A time-dependent double-barrier option is a derivative security that delivers the terminal value φ(ST ) at expiry T if neither of the continuous time-dependent barriers b± : [0, T ] → R+ have been hit during the time interval [0, T ]. Using a probabilistic approach, we obtain a decomposition of the barrier option price into the corresponding European option price minus the barrier premium for a wide class of payoff functions φ, barrier functions b± and linear diffusions (St )t∈[0,T ]. We show… CONTINUE READING

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