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

Table 14

Pricing the American 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	12.4324	0.0648	−1.2446	14.9452	0.1245	−1.7594	12.0743	0.1873	0.4084	14.2092	0.3145	0.4477
40	12.4972	−0.0807	−0.6282	15.0697	−0.2190	−0.3987	12.2616	0.0765	0.6891	14.5237	0.1408	0.7128
80	12.4165	0.0507	0.1797	14.8506	0.0873	0.3136	12.3381	0.0527	0.5628	14.6645	0.1003	0.5815
160	12.4672	0.0091	−1.2180	14.9380	0.0274	−1.4265	12.3908	0.0297	0.6462	14.7648	0.0584	0.6694
320	12.4763	−0.0111	−0.0077	14.9654	−0.0391	0.0678	12.4204	0.0192	0.6734	14.8232	0.0391	0.6892
640	12.4653	0.0001	218.2816	14.9263	−0.0026	−15.9678	12.4396	0.0129	0.6694	14.8622	0.0269	0.6824
1280	12.4653	0.0187	−0.2806	14.9236	0.0423	−0.3198	12.4525	0.0086	0.6627	14.8891	0.0184	0.6721
2560	12.4840	−0.0052		14.9659	−0.0135		12.4611	0.0058		14.9075	0.0124
5120	12.4788			14.9524			12.4669			14.9199