Pricing European barrier options

P W Buchen

Abstract

A new methodist described to price barrier options which incorporate a constant rebate. The method exploits the symmetries and properties of elementary solutions of the Black-Scholes partial differential equations. The rebate and non-rebate terms obtained agree with other published solutions, but are obtained without recourse to a single transformation or integration. The complexity of the solution methods previously published are shown to be completely unnecessary.

Keywords: Barrier options.