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Parisian option pricing: a recursive solution for the density of the Parisian stopping time

Dassios, Angelos and Lim, Jia Wei (2013) Parisian option pricing: a recursive solution for the density of the Parisian stopping time. SIAM Journal on Financial Mathematics, 4 (1). pp. 599-615. ISSN 1945-497X

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Identification Number: 10.1137/120875466

Abstract

In this paper, we obtain the density function of the single barrier one-sided Parisian stopping time. The problem reduces to that of solving a Volterra integral equation of the first kind, where a recursive solution is consequently obtained. The advantage of this new method as compared to that in previous literature is that the recursions are easy to program as the resulting formula involves only a finite sum and does not require a numerical inversion of the Laplace transform. For long window periods, an explicit formula for the density of the stopping time can be obtained. For shorter window lengths, we derive a recursive equation from which numerical results are computed. From these results, we compute the prices of one-sided Parisian options.

Item Type: Article
Official URL: http://epubs.siam.org/loi/sjfmbj
Additional Information: © 2013, Society for Industrial and Applied Mathematics
Divisions: Statistics
Subjects: H Social Sciences > HA Statistics
Q Science > QA Mathematics
Sets: Departments > Statistics
Date Deposited: 14 Aug 2014 09:16
Last Modified: 20 Jul 2019 01:48
URI: http://eprints.lse.ac.uk/id/eprint/58985

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