指导教的的授：戴天时 学生：王薇婷课件.pptVIP

指導教授：戴天時 學 生：王薇婷 7.3 Knock-out Barrier Option There are several types of barrier options. Some “Knock out” when the underlying asset price crosses a barrier (Up-and-out, Down-and-out). Other options “Knock in” at a barrier (Up-and-in, Down-and-in). The payoff at expiration for barrier options is typically either that of a put or a call. More complex barrier options require the asset price to not only cross a barrier but spend a certain amount of time across the barrier in order to knock in or knock out. 7.3.1 Up-and-Out Call 7.3.2 Black-Scholes-Merton Equation 7.3.3 Computation of the price of the Up-and-Out Call 7.3.1 Up-and-Out Call Our underlying risky asset is geometric Brownian motion Where is a Brownian motion under the risk-neutral measure . Consider a European call, expiring at time T, with strike price K and up-and-out barrier B. We assume KB; otherwise, the option must knock out in order to be in the money and hence could only pay off zero. The solution to the stochastic differential equation for the asset price is Where , and We define , so The option knocks out if and only if ; if , the option pays off In other words, the payoff of the option is (7.3.2)where , 7.3.2 Black-Scholes-Merton Equation Theorem 7.3.1Let v( t, x) denote the price at time t of the up-and-out call has not knocked out prior to time t and S(t)= x. then v(t, x) satisfies the Black-Scholes-Merton partial differential equation  (7.3.4)in the rectangle and satisfies the bound