Perturbed Brownian motion and its application to Parisian option pricing

Dassios, Angelos ORCID: 0000-0002-3968-2366 and Wu, Shanle (2010) Perturbed Brownian motion and its application to Parisian option pricing. Finance and Stochastics, 14 (3). pp. 473-494. ISSN 0949-2984

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Abstract

In this paper, we study the excursion times of a Brownian motion with drift below and above a given level by using a simple two-state semi-Markov model. In mathematical finance, these results have an important application in the valuation of path-dependent options such as Parisian options. Based on our results, we introduce a new type of Parisian options, single-barrier two-sided Parisian options, and give an explicit expression for the Laplace transform of its price formula.

Item Type:	Article
Official URL:	http://www.springerlink.com/content/0949-2984
Additional Information:	© 2010 Springer
Divisions:	Statistics
Subjects:	H Social Sciences > HG Finance
Date Deposited:	27 Aug 2010 10:49
Last Modified:	22 Oct 2024 22:24
URI:	http://eprints.lse.ac.uk/id/eprint/28993

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