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

Table 11

Pricing the American up-and-out barrier put 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	7.9544	−1.0884	−0.1976	9.0574	−1.5517	−0.1724	5.6154	−0.1700	−1.1779	5.9979	−0.1575	−1.1179
40	6.8660	0.2151	−5.9265	7.5057	0.2674	−5.8956	5.4454	0.2002	−0.0200	5.8404	0.1760	−0.0338
80	7.0811	−1.2748	−0.4846	7.7732	−1.5768	−0.4676	5.6456	−0.0040	−3.9377	6.0165	−0.0059	−2.0446
160	5.8064	0.6177	−0.9968	6.1964	0.7373	−1.0009	5.6416	0.0158	−0.0564	6.0105	0.0121	−0.1183
320	6.4241	−0.6157	−0.3600	6.9337	−0.7380	−0.3537	5.6574	−0.0009	−6.8705	6.0227	−0.0014	−3.5386
640	5.8084	0.2216	−0.9980	6.1957	0.2611	−1.0004	5.6565	0.0061	0.0889	6.0212	0.0051	0.0687
1280	6.0300	−0.2212	−0.0297	6.4568	−0.2612	−0.0291	5.6626	0.0005	3.5307	6.0263	0.0003	4.6524
2560	5.8088	0.0066		6.1956	0.0076		5.6631	0.0019		6.0267	0.0016
5120	5.8154			6.2032			5.6650			6.0283