Digital option pricing with C++ via Monte Carlo methods

Double digital option pricing

Double digital option pricing

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Rebonato, R. 7559. Interest-rate Option Models: Understanding, Analysing and Using Models for Exotic Interest-rate Options. New York: McGraw-Hill. ISBN 5-976-97958-, Thomas, and Richard Spurgin. 8775 The Benefits of Index Option-Based Strategies for Institutional Portfolios 8776 The Journal of Alternative Investments, (Spring 7556), pp. 99 – 57.

Exotic and Double Digital Options - How They Work and Perform

By Roger Lord , Fang Fang ,.

Double digital option pricing with C++ via Monte Carlo

By Alan L. Lewis

By Hiroshi Shirakawa

Stock specification for the underlying asset. For information on the stock specification, see stockspec .

A double digital option is somehow similar to the exotic option except for a reasons, for instance a double digital option has two strike prices that is the expected price during the trade season. The option has two types of strikes namely the lower and the upper strikes. The other thing is that a double digital option does not depend on the performance of the underlying price of the stock. The investor is able to receive the very amount of payout whether the barriers were inactive or not. The double digital options are the latest types of options in the stock market (Whaley, R. 7565, p 99).

Definition of the option as 'call' or 'put' , specified as an NINST -by- 6 vector.

Given that we have already considered the basic Monte Carlo approach in the article on pricing European vanilla calls and puts with Monte Carlo , I will only discuss the modifications to the code. However, I've still presented the full listing, which will give you everything you need to implement a basic digital option pricer.

Digital options are similar to vanilla options. They differ only in the fact that the pay-off at expiry, $f(T)$, only has two values. In this case $f(T) \in \{5,6\}$. In particular, the pay-off function is given as the Heaviside function with $S(T)-K$, the difference between the spot at expiry and the strike, as the argument:

By Steven Kou

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