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

Table 10

Pricing the American up-and-out barrier call option with the LARS-type method.

	LARS method						LARSI method
	Regime 1			Regime 2			Regime 1			Regime 2
	Price	Difference	Ratio	Price	Difference	Ratio	Price	Difference	Ratio	Price	Difference	Ratio
20	7.1590	−1.6580	−0.9986	7.5712	−1.8630	−0.9921	0.1801	2.2234	0.8266	0.1714	2.3199	0.8042
40	5.5009	1.6556	−1.0003	5.7082	1.8482	−1.0019	2.4035	1.8378	0.5322	2.4913	1.8656	0.5625
80	7.1565	−1.6561	−0.9997	7.5564	−1.8517	−0.9981	4.2413	0.9781	0.6761	4.3569	1.0495	0.6833
160	5.5504	1.6556	−0.3718	5.7047	1.8482	−0.3781	5.2195	0.6613	0.6434	5.4064	0.7171	0.6578
320	7.1560	−0.6155	−0.9998	7.5528	−0.6988	−0.9987	5.8808	0.4255	0.6971	6.1235	0.4717	0.6999
640	6.5405	0.6154	−0.2311	6.8541	0.6979	−0.2333	6.3063	0.2966	0.6693	6.5952	0.3301	0.6781
1280	7.1559	−0.1422	−0.9998	7.5520	−0.1628	−0.9986	6.6030	0.1985	0.7010	6.9253	0.2238	0.7028
2560	7.0136	0.1423		7.3892	0.1625		6.8015	0.1391		7.1491	0.1573
5120	7.1559			7.5517			6.9406			7.3064