A. Novikov, V. Frishling, N. Kordzakhia
abstract:
The problem of pricing of time-dependent barrier options is considered in the
case when interest rate and volatility are given functions in Black-Scholes
framework. The calculation of the fair price reduces to the calculation of
non-linear boundary crossing probabilities for a standard Brownian motion. The
proposed method is based on a piecewise-linear approximation for the boundary
and repeated integration. The numerical example provided draws attention to the
performance of suggested method in comparison to some alternatives.