A Hybrid Finite Difference Method for Pricing Two-Asset Double Barrier Options

Abstract EN

The pricing of the two-asset double barrier option is modeled as an initial-boundaryvalue problem of the two-dimensional Black-Scholes partial differential equation.

We usethe hybrid finite different method to solve the problem.

The hybrid method is a combinationof the Laplace transform and a finite difference method.

It is more efficient than atraditional finite difference method to obtain a solution without a step-by-step process.

Themethod is implemented on a computer.

Two numerical examples are calculated to verifythe performance of the hybrid method.

In our numerical examples, the convergence rateof the method is approximately two.

We conclude that the method is efficient for pricingtwo-asset barrier options.