VALUATION OF DISCRETELY MONITORED FINANCIAL DERIVATIVES BY A PROBABILISTIC APPROACH
VALUATION OF DISCRETELY MONITORED FINANCIAL DERIVATIVES BY A PROBABILISTIC APPROACH
Abstract
In this paper the Mellin transform classical approach is explored in a new
semi-analytical modified form using a new probabilistic technique for pricing financial
derivatives by solving the Black-Scholes equation with time-dependent parameters. We
apply an alternative numerical Maximum entropy technique for inversion and accurate
valuation is guaranteed by some results for probability distributions of fractional moments
previously obtained in [14], [20]. Pricing discretely monitored financial derivatives is
demonstrated by examples involving barrier options.
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