Accurate Pricing of Continuous Barrier Options With Local Volatility


  • Messaoud Chibane,

  • Hong Miao,

  • Guy Sheldon


In this paper we develop accurate technics to price continuous barrier options using a one-dimensional finite difference scheme, allowing for time-dependent drift as well as time- and state-dependent volatilities. We provide numerical examples which demonstrate the smoothness and accuracy of such methods in the Black-Scholes context as well as in the Dupire Local Volatility model.