Journal of Computational Finance

Risk.net

Discrete extrema of Brownian motion and pricing of exotic options

Colin Atkinson, Gianluca Fusai

ABSTRACT

We provide a closed-form expression for the distribution of the extrema of a Brownian motion observed at discrete times. We reduce the evaluation problem to a Wiener–Hopf integral equation that we solve analytically. Then, we apply the result to price in closed-form discrete monitored exotic options (lookback, quantile and barrier) in the Black–Scholes setting. Numerical results from our formulae are then compared with those from other numerical methods available in the literature. Finally, we discuss the relationship of our result with the well-known Spitzer identity.

Sorry, our subscription options are not loading right now

Please try again later. Get in touch with our customer services team if this issue persists.

New to Risk.net? View our subscription options

You need to sign in to use this feature. If you don’t have a Risk.net account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here