Session20 DataFile Barrier

A B C D E F G H
1 PRICING A KNOCKOUT BARRIER OPTION

2 Initial stock price 30
3 Up 1.40
4 Down 0.80
5 Interest 1.08
6 Option exercise price 30
7 Barrier 50.00
8
9 qU 0.4321 #VALUE!
10 qD 0.4938 #VALUE!
11
12 Risk-neutral probability, up 0.4667 #VALUE!
13 Risk-neutral probability, down 0.5333 #VALUE!
14
15 STOCK PRICE
16 Paths Period 1 Period 2 Period 3 Period 4 Period 0 Period 1
17 All up (1 path) up up up up 30.00 42.00

18
19 One down (4 paths) down up up up 30.00 24.00
20 up down up up 30.00 42.00
21 up up down up 30.00 42.00
22 up up up down 30.00 42.00
23
24 Two down (6 paths) down down up up 30.00 24.00
25 down up down up 30.00 24.00
26 down up up down 30.00 24.00
27 up down down up 30.00 42.00
28 up up down down 30.00 42.00
29 up down up down 30.00 42.00
30
31 Three down (4 paths) up down down down 30.00 42.00
32 down up down down 30.00 24.00
33 down down up down 30.00 24.00
34 down down down up 30.00 24.00
35
36 Four down (1 path) down down down down 30.00 24.00
37
38
39
40
41
A B C D E F G H
42
43
44
45
46
47 30
I J K L M N O
CKOUT BARRIER
1 OPTION
2
3
4
5
6
7
8
9
10
11
12 #VALUE!
13
14
STOCK
15 PRICE
Max(St)< Path Knockout

16 Period 2 Period 3 Period 4 risk-neutral option
Barrier? probability payoff
17 58.80 82.32 115.25 0.00 0.0474 0.00

18
19 33.60 47.04 65.86 0.00 0.0542 0.00
20 33.60 47.04 65.86 0.00 0.0542 0.00
21 58.80 47.04 65.86 0.00 0.0542 0.00
22 58.80 82.32 65.86 0.00 0.0542 0.00
23
24 19.20 26.88 37.63 1.00 0.0619 7.63
25 33.60 26.88 37.63 1.00 0.0619 7.63
26 33.60 47.04 37.63 1.00 0.0619 7.63
27 33.60 26.88 37.63 1.00 0.0619 7.63
28 58.80 47.04 37.63 0.00 0.0619 0.00
29 33.60 47.04 37.63 1.00 0.0619 7.63
30
31 33.60 26.88 21.50 1.00 0.0708 0.00
32 33.60 26.88 21.50 1.00 0.0708 0.00
33 19.20 26.88 21.50 1.00 0.0708 0.00
34 19.20 15.36 21.50 1.00 0.0708 0.00
35
36 19.20 15.36 12.29 1.00 0.0809 0.00
37
38 Knockout value 1.7375
39
40 #VALUE!
41
I J K L M N O
42 #VALUE!
43
44
45
46
47
A B C D E F G H
1 PRICING A KNOCKIN BARRIER OPTION
3 Up 1.40
4 Down 0.80
5 Interest 1.08
7 Barrier 50.00
8
9 qU 0.4321 #VALUE!
10 qD 0.4938 #VALUE!
11
14
15 STOCK PRICE

18
20 up down up up 30.00 42.00
21 up up down up 30.00 42.00
22 up up up down 30.00 42.00
23
30
35
37
38
39
40
41
A B C D E F G H
42
43
44
45
46
47 30
I J K L M N O
OCKIN BARRIER
1 OPTION
2
3
4
5
6
7
8
9
10
11
12 #VALUE!
13
14
STOCK
15 PRICE
Max(St)< Path
Option
16 Period 2 Period 3 Period 4 risk-neutral
Barrier? payoff
probability
17 58.80 82.32 115.25 0.00 0.0474 85.25

18
19 33.60 47.04 65.86 0.00 0.0542 35.86
20 33.60 47.04 65.86 0.00 0.0542 35.86
21 58.80 47.04 65.86 0.00 0.0542 35.86
22 58.80 82.32 65.86 0.00 0.0542 35.86
23
24 19.20 26.88 37.63 1.00 0.0619 0.00
25 33.60 26.88 37.63 1.00 0.0619 0.00
26 33.60 47.04 37.63 1.00 0.0619 0.00
27 33.60 26.88 37.63 1.00 0.0619 0.00
28 58.80 47.04 37.63 0.00 0.0619 7.63
29 33.60 47.04 37.63 1.00 0.0619 0.00
30
31 33.60 26.88 21.50 1.00 0.0708 0.00
32 33.60 26.88 21.50 1.00 0.0708 0.00
33 19.20 26.88 21.50 1.00 0.0708 0.00
34 19.20 15.36 21.50 1.00 0.0708 0.00
35
36 19.20 15.36 12.29 1.00 0.0809 0.00
37
38 Knockin value 9.0334
39
40 #VALUE!
41
I J K L M N O
42 #VALUE!
43
44
45
46
47
A B C D E F G H
1 KNOCKIN + KNOCKOUT = PLA
3 Up 1.40
4 Down 0.80
5 Interest 1.08
7 Barrier 50.00
8
9 qU 0.4321 #VALUE!
10 qD 0.4938 #VALUE!
11
14
15 STOCK PRICE

18
20 up down up up 30.00 42.00
21 up up down up 30.00 42.00
22 up up up down 30.00 42.00
23
30
35
37
38
39
40
41
42
43
A B C D E F G H
44
45
46
47
48 30
I J K L M N O P
CKIN + KNOCKOUT
1 = PLAIN VANILLA
2
3
4
5
6
7
8
9
10 #VALUE!
11
12
13
14
15STOCK PRICE
Max(St)< Path
Knockout Knockin
16 Period 2 Period 3 Period 4 risk-neutral
Barrier? payoff payoff
probability
17 58.80 82.32 115.25 0.00 0.0474 0 85.2480

18
19 33.60 47.04 65.86 0.00 0.0542 0 35.8560
20 33.60 47.04 65.86 0.00 0.0542 0 35.8560
21 58.80 47.04 65.86 0.00 0.0542 0 35.8560
22 58.80 82.32 65.86 0.00 0.0542 0 35.8560
23
24 19.20 26.88 37.63 1.00 0.0619 7.632 0.0000
25 33.60 26.88 37.63 1.00 0.0619 7.632 0.0000
26 33.60 47.04 37.63 1.00 0.0619 7.632 0.0000
27 33.60 26.88 37.63 1.00 0.0619 7.632 0.0000
28 58.80 47.04 37.63 0.00 0.0619 0 7.6320
29 33.60 47.04 37.63 1.00 0.0619 7.632 0.0000
30
31 33.60 26.88 21.50 1.00 0.0708 0 0.0000
32 33.60 26.88 21.50 1.00 0.0708 0 0.0000
33 19.20 26.88 21.50 1.00 0.0708 0 0.0000
34 19.20 15.36 21.50 1.00 0.0708 0 0.0000
35
36 19.20 15.36 12.29 1.00 0.0809 0 0.0000
37
38 Knockin 9.0334 #VALUE!
39 Knockout 1.7375 #VALUE!
40 Sum 10.7708 #VALUE!
41 Plain vanilla 10.7708 #VALUE!
42
43 #VALUE!
I J K L M N O P
44
45 #VALUE!
46
47
48
Q
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Plain
16
vanilla
17 85.2480
18
19 35.8560
20 35.8560
21 35.8560
22 35.8560
23
24 7.6320
25 7.6320
26 7.6320
27 7.6320
28 7.6320
29 7.6320
30
31 0.0000
32 0.0000
33 0.0000
34 0.0000
35
36 0.0000
37
38
39
40
41
42
43
A B C D E F
1
PRICING BARRIER OPTIONS
BY MONTE CARLO
2 Up 1.4
3 Down 0.8
4 Interest 1.08
5
6 Initialprice 30
7 Periods 4
8 Exercise 30
9 Barrier 50
10
11 Runs 100
12
13 Knockin option value #VALUE! #VALUE!
14 Actual value 9.0334 #VALUE!
15
16 Knockout option value #VALUE! #VALUE!
17 Actual value 1.7375 <-- Determined from fully-worked out example
18
19 48 iterations of MCBarrierIn
20 #VALUE! #VALUE! #VALUE! #VALUE! #VALUE! #VALUE!
28
29 Average of simulations #VALUE! #VALUE!
30 True value 9.0334 #VALUE!
31
32 #VALUE! #VALUE!
33 #VALUE! #VALUE!
34 #VALUE! #VALUE!
A B C D E F
PRICING BARRIER OPTIONS--VBA FUNC

Each time interval is divided into n subintervals. In this simulation the initial st
1 the time to maturity = 0.40, and the unit time interval is divided into 80 subint
return = 15.00% and standard deviation = 1.25%, and the
There are 100 runs in each Monte Carlo sim
2 S0, current stock price 50
3 X, exercise price 45
4 Barrier 50
5 T, time to option exercise 0.4
6 r, interest rate 8%
7 m, mean stock return 15%
8 s, standard deviation of stock return 22%
9
10 n, number of sub-intervals of 1 period 80
11 Delta t 0.0125 #VALUE!
12
13 Up over 1 sub-interval 1.0268 #VALUE!
14 Down over 1 sub-interval 0.9775 #VALUE!
15 Interest over 1 sub-interval 1.0010 #VALUE!
16
17 Runs 100
18
27
28 Average of above #VALUE! #VALUE!
29 Minimum #VALUE! #VALUE!
30 Maxmimum #VALUE! #VALUE!
31 Standard deviation #VALUE! #VALUE!
32
33 Data table: Sensitivity of results on number of runs
Average
Standard
34 Runs of 48 Minimum Maximum
deviation
MCBarrierIn
35 #VALUE! #VALUE! #VALUE! #VALUE!

36 50 #VALUE! #VALUE! #VALUE! #VALUE!
A B C D E F
47
48
49
50
51
52
53
54
55
56
57
58
G H I
ER OPTIONS--VBA FUNCTION
s simulation the initial stock price = 50.00, the exercise price = 45.00,
is divided 1into 80 subintervals. The stock price process has mean
eviation = 1.25%, and the interest rate = 8.00%.
s in each Monte Carlo simulation
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19 #VALUE!
20
21
22
23
24
25
26
27
28
29
30
31
32
n number of33runs
34
35 #VALUE!
36
37
38 12.0000 48 MCBarrierIn Simulations for Various Numbers of Runs
39
10.0000
8.0000
12.0000 48 MCBarrierIn Simulations for Various Numbers of Runs
G H I
40
10.0000
41
42
43 8.0000
44
45
46 6.0000 Average
of 48 MCBarrierIn
47
48 Minimum
49 4.0000
Maximum
50
Standard
51
2.0000 deviation
52
53
54 0.0000
55 50 100 150 200 250 300 350 400 450 500 550
56
Runs per simulation
57
58
J K
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
Numbers of
38
Runs
39
Numbers of Runs
J K
40
41
42
43
44
45
46
n
47
48
49
50
51
52
53
54
450 500 55 550
56
57
58
A B
1
KNOCKIN + KNOCKOUT = CALL
The almost-continuous case
2 S0, current stock price 30
3 X, exercise price 30
4 Barrier 40
5 T, time to option exercise 0.4
6 r, interest rate 8%
7 m, mean stock return 15%
8 s, standard deviation of stock return 22%
9
10 n, number of sub-intervals of 1 period 200
11 Delta t 0.0050
12
13 Up over 1 sub-interval 1.0164
14 Down over 1 sub-interval 0.9853
15 Interest over 1 sub-interval 1.0004
16
17 Runs 700
18
19 Knockout barrier #VALUE!
20 Knockin barrier #VALUE!
21 Sum of knockout + knockin #VALUE!
22 Black-Scholes call price #VALUE!
C
KNOCKIN1
+ KNOCKOUT = CALL
The almost-continuous case
2
3
4
5
6
7
8
9
10
11 #VALUE!
12
13 #VALUE!
14 #VALUE!
15 #VALUE!
16
17
18
19 #VALUE!
20 #VALUE!
21 #VALUE!
22 #VALUE!

Session20 DataFile Barrier

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Session20 DataFile Barrier

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A B C D E F G H

1 PRICING A KNOCKOUT BARRIER OPTION

16 Paths Period 1 Period 2 Period 3 Period 4 Period 0 Period 1

17 All up (1 path) up up up up 30.00 42.00

Max(St)< Path Knockout

17 58.80 82.32 115.25 0.00 0.0474 0.00

16 Paths Period 1 Period 2 Period 3 Period 4 Period 0 Period 1

17 All up (1 path) up up up up 30.00 42.00

17 58.80 82.32 115.25 0.00 0.0474 85.25

16 Paths Period 1 Period 2 Period 3 Period 4 Period 0 Period 1

17 All up (1 path) up up up up 30.00 42.00

17 58.80 82.32 115.25 0.00 0.0474 0 85.2480

PRICING BARRIER OPTIONS--VBA FUNC

35 #VALUE! #VALUE! #VALUE! #VALUE!

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