Howison, Sam and Steinberg, Mario (2005) A matched asymptotic expansions approach to continuity corrections for discretely sampled options. Part 1: barrier options. Applied Mathematical Finance . (In Press)

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Abstract
We discuss the `continuity correction' that should be applied to relate the prices of discretely sampled barrier options and their continuouslysampled equivalents. Using a matched asymptotic expansions approach we show that the correction of Broadie, Glasserman & Kou (Mathematical Finance 7, 325 (1997)) can be applied in a very wide variety of cases. We calculate the correction to higher order in terms of the expansion parameter (the scaled time between resets) and we show how to apply the correction in jumpdiffusion and local volatility models.
Item Type:  Article 

Uncontrolled Keywords:  Barrier option, discrete sampling, continuity correction. 
Subjects:  D  G > Game theory, mathematical finance, economics, social and behavioral sciences 
Research Groups:  Mathematical and Computational Finance Group 
ID Code:  225 
Deposited By:  Sam Howison 
Deposited On:  20 Apr 2006 
Last Modified:  29 May 2015 18:18 
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