Review of Derivatives Research

, Volume 17, Issue 2, pp 191–216 | Cite as

Efficiently pricing double barrier derivatives in stochastic volatility models

  • Marcos EscobarEmail author
  • Peter Hieber
  • Matthias Scherer


Imposing a symmetry condition on returns, Carr and Lee (Math Financ 19(4):523–560, 2009) show that (double) barrier derivatives can be replicated by a portfolio of European options and can thus be priced using fast Fourier techniques (FFT). We show that prices of barrier derivatives in stochastic volatility models can alternatively be represented by rapidly converging series, putting forward an idea by Hieber and Scherer (Stat Probab Lett 82(1):165–172, 2012). This representation turns out to be faster and more accurate than FFT. Numerical examples and a toolbox of a large variety of stochastic volatility models illustrate the practical relevance of the results.


First-passage time Barrier options Stochastic volatility  Stochastic clock 

JEL Classification

G13 C02 C63 


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Copyright information

© Springer Science+Business Media New York 2013

Authors and Affiliations

  • Marcos Escobar
    • 1
    Email author
  • Peter Hieber
    • 2
  • Matthias Scherer
    • 2
  1. 1.Department of MathematicsRyerson UniversityTorontoCanada
  2. 2.Lehrstuhl für Finanzmathematik (M13)Technische Universität MünchenGarching-HochbrückGermany

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