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

Table 5

Pricing the European down-and-out 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	0.5299	−0.3710	−0.1251	0.2961	−0.2107	−0.1278	0.1001	−0.0005	26.3194	0.0545	−0.0011	6.1249
40	0.1589	0.0464	−0.7938	0.0854	0.0269	−0.7560	0.0996	−0.0134	0.5454	0.0534	−0.0070	0.5881
80	0.2053	−0.0369	1.6459	0.1123	−0.0204	1.6562	0.0861	−0.0073	0.0927	0.0465	−0.0041	0.0881
160	0.1684	−0.0607	0.0557	0.0919	−0.0337	0.0534	0.0788	−0.0007	2.7990	0.0424	−0.0004	2.8866
320	0.1078	−0.0034	−1.2756	0.0582	−0.0018	−1.3459	0.0782	−0.0019	0.9838	0.0420	−0.0010	1.0095
640	0.1044	0.0043	−6.7772	0.0564	0.0024	−6.6444	0.0763	−0.0019	−0.2083	0.0410	−0.0011	−0.2195
1280	0.1087	−0.0292	−0.3595	0.0588	−0.0161	−0.3591	0.0744	0.0004	−0.7057	0.0399	0.0002	−0.6565
2560	0.0795	0.0105		0.0427	0.0058		0.0748	−0.0003		0.0401	−0.0001
5120	0.0900			0.0485			0.0745			0.0400