Barrier option volatility surface
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Despite all the existing literature, barrier option solutions are thin on the ground. In fact, prices quoted for certain kinds of barrier option can vary so much between dealers that customers can sometimes cross the bid-offer that is, buy on one dealer's offer and sell on another dealer's bid for a profit.
Barrier Options - The Volatility Surface: A Practitioner's Guide - Wiley Online Library
So there is still plenty of scope for the ambitious modeler. Barrier options are important building blocks for structured products, but their valuation can be highly model dependent. Barrier option values are not always very model dependent.
However, the valuation of certain types of barrier options can be extremely model dependent. Developing intuition is therefore particularly important not only to be able to estimate the value of a barrier options but also to know whether the output of a model should be trusted or not.
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Risk Latte - What volatility to use for pricing Barrier Options
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Hughes Optioneering
Barrier option; modeler; structured product; barrier option valuation. Summary Despite all the existing literature, barrier option solutions are thin on the ground. Publications Browse by Subject Resources.