Efficient Lattice Method for Valuing of Options with Barrier in a Regime Switching Model

Table 1

Comparison of different methods in pricing the European call option in LARS method.

	Regime 1				Regime 2
	Naik	B&D	Y&Y	LARS	Naik	B&D	Y&Y	LARS
European call option 1
94	5.8620	5.8579	5.8615	5.8612	8.2292	8.2193	8.2297	8.2296
96	6.9235	6.9178	6.9229	6.9226	9.3175	9.3056	9.3181	9.3180
98	8.0844	8.0775	8.0827	8.0834	10.4775	10.4647	10.4772	10.4779
100	9.3401	9.3324	9.3369	9.3390	11.7063	11.6929	11.7049	11.7066
102	10.6850	10.6769	10.6828	10.6839	13.0008	12.9870	13.0001	13.0010
104	12.1127	12.1045	12.1108	12.1114	14.3575	14.3436	14.3571	14.3576
106	13.6161	13.6082	13.6143	13.6147	15.7729	15.7591	15.7725	15.7729
European call option 2
94	6.2748	6.2705	6.2760	6.2758	7.8905	7.8844	7.8943	7.8942
96	7.3408	7.3352	7.3422	7.3420	8.9747	8.9680	8.9789	8.9788
98	8.5001	8.4938	8.5010	8.5017	10.1335	10.1264	10.1374	10.1380
100	9.7489	9.7423	9.7489	9.7509	11.3641	11.3568	11.3673	11.3690
102	11.0820	11.0755	11.0833	11.0844	12.6631	12.6659	12.6674	12.6683
104	12.4937	12.4877	12.4959	12.4965	14.0267	14.0197	14.0317	14.0322
106	13.9777	13.9726	13.9805	13.9810	15.4510	15.4446	15.4565	15.4569