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

Table 12

Pricing the European double 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	7.4788	−0.0969	12.0395	5.9400	−0.0507	24.3064	5.6723	0.0724	0.3143	4.1254	0.0460	0.8110
40	7.3819	−1.1669	−0.2170	5.8893	−1.2334	−0.1959	5.7447	0.0228	0.6148	4.1714	0.0373	0.3820
80	6.2150	0.2532	−0.9646	4.6559	0.2416	−0.9230	5.7675	0.0140	0.4757	4.2086	0.0142	0.4819
160	6.4682	−0.2442	0.9075	4.8975	−0.2230	1.0357	7.7815	0.0067	0.5439	4.2229	0.0069	0.4879
320	6.2240	−0.2216	0.5402	4.6745	−0.2310	0.5033	5.7881	0.0036	0.5865	4.2297	0.0033	0.4995
640	6.0024	−0.1197	−1.0097	4.4435	−0.1163	−1.0204	5.7918	0.0021	0.4641	4.2331	0.0017	0.5644
1280	5.8827	0.1209	−0.9951	4.3273	0.1186	−0.9899	5.7939	0.0010	0.2764	4.2348	0.0009	0.5660
2560	6.0035	−0.1202		4.4459	−0.1174		5.7949	0.0002		4.2357	0.0005
5120	5.8833			4.3285			5.7951			4.2362