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Continuity Correction for Barrier Options in Jump-Diffusion Models
El Hadj Aly Dia, Damien Lamberton
Source abstract
The aim of this paper is to study the continuity correction for barrier options in jump-diffusion models. For this purpose, we express the payoff of a barrier option in terms of the maximum of the underlying process. We then condition with respect to the jump times and to the values of the underlying at the jump times and rely on the connection between the maximum of the Brownian motion and Bessel processes.
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