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| Pricing Value Difference between Barrier and Vanilla Options with Binomial Pricing Method |
| HU Wen-Wei-1, LI Zhan-2 |
| (1. Financial Economist Research Center, Shanghai Stock Exchange, Shanghai 200120, China;2. Antai College of Economics and Management, Shanghai Jiaotong University, Shanghai 200052, China) |
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Abstract The binomial pricing method was adopted to build a pricing model for the value difference between barrier and vanilla options which are different only in barrier, as well as the impacts of several key factors on the price difference. The outcomes indicate that the value of the barrier option is lower than that of the vanillar option. Moreover, for the downandout call options, the price difference gets bigger with any of the situations which are higher barrier, higher call price, longer maturity, lower underlying asset price, and smaller expected return rate or bigger volatility of the underlying asset price.
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Published: 28 May 2012
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