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

Table 9

Pricing the European up-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	7.5614	−1.0591	−0.1951	8.5033	−1.4915	−0.1726	5.2933	−0.1666	−1.1509	5.5685	−0.1550	−1.0705
40	6.5023	0.2066	−5.9780	7.0118	0.2575	−5.8889	5.1267	0.1918	−0.0217	5.4135	0.1659	−0.0306
80	6.7089	−1.2352	−0.4839	7.2693	−1.5164	−0.4677	5.3184	−0.0042	−3.5735	5.5794	−0.0051	−2.3325
160	5.4737	0.5977	−0.9975	5.7530	0.7092	−1.0004	5.3143	0.0149	−0.0632	5.5744	0.0118	−0.1022
320	6.0715	−0.5963	−0.3598	6.4622	−0.7095	−0.3538	5.3291	−0.0009	−6.2294	5.5862	−0.0012	−4.0389
640	5.4752	0.2145	−0.9983	5.7527	0.2510	−1.0003	5.3282	0.0059	0.0862	5.5850	0.0049	0.0695
1280	5.6897	−0.2142	−0.0297	6.0037	−0.2511	−0.0291	5.3340	0.0005	3.6497	5.5899	0.0003	4.6204
2560	5.4756	0.0064		5.7526	0.0073		5.3346	0.0018		5.5902	0.0016
5120	5.4819			5.7599			5.3364			5.5918