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

Table 4

Pricing the European down-and-out 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	11.6335	−1.4914	−0.1840	13.4120	−2.1980	−0.1660	8.7988	−0.0745	−2.1090	9.5653	−0.0680	−1.8901
40	10.1420	0.2745	−1.0490	11.2140	0.3648	−1.0776	8.7243	0.1571	0.3370	9.4974	0.1285	0.3463
80	10.4165	−0.2879	2.1678	11.5788	−0.3931	2.0738	8.8814	0.0529	0.0803	9.6258	0.0445	0.0582
160	10.1286	−0.6242	0.0853	11.1857	−0.8152	0.0839	8.9343	0.0042	3.8905	9.6703	0.0026	5.3210
320	9.5043	−0.0533	−0.9695	10.3705	−0.0684	−0.9553	8.9386	0.0165	0.8524	9.6729	0.0138	0.8811
640	9.4511	0.0516	−8.5059	10.3021	0.0654	−8.4494	8.9551	0.0141	−0.1603	9.6867	0.0121	−0.1824
1280	9.5027	−0.4392	−0.3926	10.3674	−0.5523	−0.3892	8.9692	−0.0023	−1.0424	9.6988	−0.0022	−0.8923
2560	9.0635	0.1724		9.8151	0.2150		8.9669	0.0024		9.6966	0.0020
5120	9.2359			10.0301			8.9693			9.6986