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Advanced Quantitative Finance with C++ by Alonso Peña Ph.D

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Advanced example – FX barrier option (FX2)

In this second example, we consider the pricing of an exotic option: an up-and-out barrier with a call payoff. The details of the approach are shown in the following Bento Box template for FX Barrier Up and Out option (FX2):

Advanced example – FX barrier option (FX2)

Bento Box template for FX Barrier Up and Out option (FX2)

Note that there is a great advantage of using Finite Difference Methodology (FDM) with respect to Monte Carlo (MC) in pricing a continuously monitored barrier option. This is because MC is rather complex to incorporate the continuously monitored features, leaving us with little choice but to increase the number of fixing/observation ...

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