Simulating Prices of the Barrier Option Based on Black and Scholes Model
These authors contributed equally.
- DOI
- 10.2991/aebmr.k.220307.377How to use a DOI?
- Keywords
- Black and Scholes Model; Barrier Option; Valuation
- Abstract
In the financial markets nowadays, the option is one of the popular financial products that has been increasingly traded. Exotic options, including barrier options, were invented to cater to the special needs of the investors. However, the pricing model of these financial instruments is complicated, and few studies have assessed the pricing model of barrier options. In this article, the present value of the knock-in barrier call option is evaluated through the traditional Black and Scholes model. To make the barrier option representative, we chose the underlying to be the S&P 500 index. Through a stochastic process in Excel, we managed to simulate the barrier option of S&P 500 with a maturity of 1 month. The simulation generates a graph that shows the relationship between payoff and the S&P 500 price, facilitating the categorization of barrier options. A series of sensitivity analyses are conducted to examine the soundness of the simulation, while several important factors that have a bearing on the value of the barrier option are presented and discussed, such as spot price, strike price, and barrier price. The simulation can serve as a helpful tool for investors to evaluate barrier options. Yet, it is constrained in a short period, so the pricing of the long-term barrier option may not behave in the same way and should be studied in the future.
- Copyright
- © 2022 The Authors. Published by Atlantis Press International B.V.
- Open Access
- This is an open access article under the CC BY-NC license.
Cite this article
TY - CONF AU - Zhongao Li AU - Zhinan Wang AU - Haokun Yao PY - 2022 DA - 2022/03/26 TI - Simulating Prices of the Barrier Option Based on Black and Scholes Model BT - Proceedings of the 2022 7th International Conference on Financial Innovation and Economic Development (ICFIED 2022) PB - Atlantis Press SP - 2308 EP - 2315 SN - 2352-5428 UR - https://doi.org/10.2991/aebmr.k.220307.377 DO - 10.2991/aebmr.k.220307.377 ID - Li2022 ER -