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

Table 7

Pricing the American 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
	6.3763	−1.3074	−1.0040	6.8947	−1.5517	−0.9916	0.8840	2.1826	0.6745	0.9394	2.2911	0.6740
	5.0690	1.3126	0.1710	5.3429	1.5387	0.1778	3.0667	1.4722	0.5649	3.2305	1.5442	0.5954
	6.3816	0.2245	−0.9941	6.8817	0.2736	−1.0116	4.5389	0.8316	0.5833	4.7747	0.9195	0.6112
	6.6061	−0.2232	−1.0030	7.1553	−0.2768	−0.9936	5.3705	0.4851	0.6695	5.6942	0.5620	0.6775
	6.3829	0.2239	0.9866	6.8785	0.2750	1.0062	5.8556	0.3247	0.6666	6.2561	0.3807	0.6768
	6.6067	0.2209	−0.9993	7.1535	0.2767	−1.0017	6.1803	0.2165	0.6214	6.6369	0.2577	0.6431
	6.8276	−0.2207	−1.0003	7.4302	−0.2772	−0.9991	6.3968	0.1345	0.7080	6.8945	0.1657	0.7073
	6.6069	0.2208		7.1530	0.2769		6.5313	0.0952		7.0603	0.1172
	6.8277			7.4299			6.6265			7.1775