Research Article
Barrier Option Pricing Based on Monte-Carlo Simulation
@INPROCEEDINGS{10.4108/eai.28-10-2022.2328413, author={Xinyang Bian and Zhaowei Huang and Waikai Zheng}, title={Barrier Option Pricing Based on Monte-Carlo Simulation}, proceedings={Proceedings of the International Conference on Financial Innovation, FinTech and Information Technology, FFIT 2022, October 28-30, 2022, Shenzhen, China}, publisher={EAI}, proceedings_a={FFIT}, year={2023}, month={4}, keywords={monte carlo simulation; knock out option; barrier sensitivity}, doi={10.4108/eai.28-10-2022.2328413} }- Xinyang Bian
Zhaowei Huang
Waikai Zheng
Year: 2023
Barrier Option Pricing Based on Monte-Carlo Simulation
FFIT
EAI
DOI: 10.4108/eai.28-10-2022.2328413
Abstract
The barrier option is one of the popular and widely used exotic options. This paper proposes a framework of simulations working in stock markets. Specifically, we investigate the barrier option pricing based on Monte Carlo Simulation to find the best time to purchase. According to the analysis, the barrier option is similar to the call and put option. However, the barrier option gives investors a chance to purchase a stock at a lower price. The barrier option price is changed with stock price. Besides, the best time to buy a barrier option is not the cheapest price for the barrier option. In general, every stock has the best price to purchase, but the risk can be increased with the barrier option. Barrier option is not a perfect exotic option and investors need to realize these properties before using it. These results shed light on the barrier option pricing, which can help investors gain extra returns in the market. Moreover, it offers a better understanding for barrier options which gives suggestions to make investment decisions for using exotic options.