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

Table 15

Pricing the American double 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	21.8204	0.0549	−0.6749	23.4097	−0.0197	8.4024	21.7067	0.0826	0.1183	23.0915	0.0456	−0.2495
40	21.8754	−0.0371	−0.5947	23.3900	−0.1657	−0.2468	21.7893	0.0098	1.4698	23.1372	−0.0114	−0.9766
80	21.8383	0.0221	−0.4942	23.2243	0.0409	−1.0437	21.7991	0.0144	0.3350	23.1258	0.0111	0.1763
160	21.8603	−0.0109	1.1220	23.2652	−0.0427	0.9272	21.8135	0.0048	0.5809	23.1369	0.0020	0.7872
320	21.8494	−0.0122	0.6107	23.2225	−0.0396	0.5892	21.8183	0.0028	0.6598	23.1389	0.0015	0.8910
640	21.8372	−0.0075	−1.1900	23.1829	−0.0233	−0.9767	21.8211	0.0018	0.4232	23.1404	0.0014	0.3589
1280	21.8297	0.0089	−0.9289	23.1596	0.0228	−1.0140	21.8229	0.0008	0.2702	23.1418	0.0005	−0.2092
2560	21.8386	−0.0082		23.1824	−0.0231		21.8237	0.0002		23.1423	−0.0001
5120	21.8304			23.1593			21.8239			23.1422