Research Post

Prices of barrier and first-touch digital options in Lévy driven models, near barrier

18 June 2014

This paper describes the calculation of the asymptotics of barrier options and one-touch options near the barrier for wide classes of Lévy processes. In the case of processes of infinite activity and finite variation, with the drift pointing from the barrier, the authors prove that the price is discontinuous at the barrier. This observation can serve as the basis for a simple, robust test of the type of processes observed in the financial markets.

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