We propose a Markov chain method for pricing discretely monitored barrier options in both the constant and time-varying volatility valuation frameworks. The method uses a time homogeneous Markov Chain to approximate the underlying asset price process. Our approach provides a natural framework...

The method here to price discretely monitored barrier options in both constant and time-varying volatility valuation frameworks uses a time-homogeneous Markov chain to approximate the underlying asset price process. It provides a natural framework for this pricing process because the discrete...