Application of the Heath-Platen Estimator in Pricing Barrier and Bond Options

Dr Sema Coskun, Technische Universität Kaiserslautern

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Feb 08, 2018 02:00 PM to
Feb 15, 2018 03:00 PM


MAB 119

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Abstract. Both barrier options and the Heston stochastic volatility model are omnipresent in real-life applications of nancial mathematics. erefore, we apply the Heath-Platen (HP) estimator to price barrier options in the Heston model se ing as an alternative to conventional Monte Carlo methods and PDE based methods. We demonstrate the superior performance of the HP estimator via numerical examples and explain this performance by a detailed look at the underlying theoretical structure of the HP estimator. Furthermore, we show brie y how the concept of the HP estimator can be applied for pricing zero coupon bond options in the stochastic volatility model of Fong-Vasicek.

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