Abstract
This paper describes European-style valuation and hedging procedures for a class of knockout barrier options under stochastic volatility. A pricing framework is established by applying mean self-financing arguments and the minimal equivalent martingale measure. Using appropriate combinations of stochastic numerical and variance reduction procedures we demonstrate that fast and accurate valuations can be obtained for down-and-out call options for the Heston model.
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Heath, D., Platen, E. Valuation of FX barrier options under stochastic volatility. Financial Engineering and the Japanese Markets 3, 195–215 (1996). https://doi.org/10.1007/BF02425801
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DOI: https://doi.org/10.1007/BF02425801