Pricing double barrier Parisian options using Laplace transforms

Céline Labart (1) , Jérôme Lelong (1)

1 MATHFI - Financial mathematics

In this article, we study a double barrier version of the standard Parisian options. We give closed formulas for the Laplace transforms of their prices with respect to the maturity time. We explain how to invert them numerically and prove a result on the accuracy of the numerical inversion when the function to be recovered is sufficiently smooth. Henceforth, we study the regularity of the Parisian option prices with respect to maturity time and prove that except for particular values of the barriers, the prices are of class C infinity. This study heavily relies on the existence of a density for the Parisian times, so we have deeply investigated the existence and the regularity of the density for the Parisian times.

Mots clés: double barrier option; Parisian option; Laplace transform; numerical inversion; Brownian excursions; Euler summation; option price regularity

Domaines: Probabilités [math.PR]

Céline Labart, Jérôme Lelong. Pricing double barrier Parisian options using Laplace transforms. International Journal of Theoretical and Applied Finance, 2009, 12 (1), pp.19-44. ⟨10.1142/S0219024909005154⟩. ⟨hal-00220470⟩