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Perturbed Brownian motion and its application to Parisian option pricing

Dassios, Angelos 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
Library of Congress subject classification: H Social Sciences > HG Finance
Sets: Collections > Economists Online
Departments > Statistics
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: UT ISI:000280076300007
Date Deposited: 27 Aug 2010 10:49
URL: http://eprints.lse.ac.uk/28993/

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