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

Table 17

Pricing the European call option with the LARS method: great deviation in volatility.

	Regime 1			Regime 2
	Price	Difference	Ratio	Price	Difference	Ratio
20	9.6172	0.0900	0.6695	20.2019	−0.1418	0.4953
40	9.7071	0.0602	0.4450	20.0601	−0.0702	0.4968
80	9.7674	0.0268	0.4514	19.9899	−0.0349	0.4984
160	9.7942	0.0121	0.4825	19.9550	−0.0174	0.4993
320	9.8063	0.0058	0.4925	19.9376	−0.0087	0.4996
640	9.8121	0.0029	0.4965	19.9289	−0.0043	0.4998
1280	9.8150	0.0014	0.4983	19.9246	−0.0022	0.4999
2560	9.8164	0.0007		19.9224	−0.0011
5120	9.8171			19.9214