Tid: 10 Maj 2010 kl 15.15-16.00.

Plats : Seminarierum 3733 , Institutionen för matematik, KTH, Lindstedts väg 25, plan 7. Karta!

Föredragshållare: Meng Bai Wang

Titel: Pricing FX barriers with local volatility surface (Examensarbete – Master thesis)

Abstract

This thesis utilizes local volatility surface to price FX one touch barrier options for currency pair USD/SEK. A functional surface based on discrete market data for the implied volatility surface is created. The data are further used to compute the local volatility surface based on the famous Dupire (1994) model. The thesis further investigates the pricing discrepancies between options prices under implied volatility surface using the analytical pricing formula for one touch barrier options proposed by Reiner & Rubenstein (1991) with the finite discretization method by Crank & Nicholson (1947) using local volatility surface. We found that the discrepancies are small between the analytical and numerical priced barriers.

The full report (pdf)

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