Financial engineering and computation: principles, mathematics, and algorithms
Financial engineering and computation: principles, mathematics, and algorithms
Model checking for probability and time: from theory to practice
LICS '03 Proceedings of the 18th Annual IEEE Symposium on Logic in Computer Science
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Financial derivatives are contracts concerning rights and obligations to engage in future transactions on some underlying financial instrument. A major concern in financial markets is to compute an expected value of such contracts as a basis for trading decisions. The Cox, Ross and Rubinstein (CRR) binomial tree model is a popular discrete approach to such computations, which requires time quadratic in the number of discrete temporal steps to contract termination. Lyuu has shown that barrier options can be valued with respect to the CRR model in linear time, using a combinatorial method. The paper develops a generalization of Lyuu's result, showing that a class of more complex options comprised of a sequence of barriers can be valued in linear time.