Pricing of Parisian Options for a Jump-Diffusion Model with Two-Sided Jumps

Abstract

Using the solution of one-sided exit problem, a procedure to price Parisian barrier options in a jump-diffusion model with two-sided exponential jumps is developed. By extending the method developed in Chesney, Jeanblanc-Picqué and Yor (1997 Chesney, M., Jeanblanc-Picqué, M. and Yor, M. 1997. Brownian excursions and Parisian barrier options. Advances in Applied Probability, 29(1): 165–184. [Crossref], [Web of Science ®] , [Google Scholar]; Brownian excursions and Parisian barrier options, Advances in Applied Probability, 29(1), pp. 165–184) for the diffusion case to the more general set-up, we arrive at a numerical pricing algorithm that significantly outperforms Monte Carlo simulation for the prices of such products.

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