Pricing Double Barrier Options

Double Barrier options are path-dependent options. They have two pre-defined barriers, one higher and one lower than the current asset price. If the asset price crosses either barrier, the option is either initiated (for an in or knock-in barrier) or terminates (if an out or knock-out barrier).

Double Barrier options are targeted at investors who expect the value of an asset to vary within a range. They are commonly used in forex and commodities markets, and tend to be cheaper than their vanilla counterparts.

Double Barrier Option in Excel

This Excel spreadsheet implements the numerical algorithm proposed by Ikeda and Kunitomo in “Pricing options with curved boundaries, Mathematical Finance, 2 (1992): 275-298)”. It is only valid if the strike price is between the upper and lower barrier.

Download Excel Spreadsheet to Price Double Barrier Options

One thought on “Pricing Double Barrier Options

  1. Hi there,
    For an up-and-out barrier option, how does vega behave as the asset price approaches the barrier level? Also, why is delta negative as the price approaches the barrier?

    Cheers

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