Forums > Pricing & Modelling > Option Pricing Help

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 paulchen Total Posts: 2 Joined: Apr 2020
 Posted: 2020-04-27 14:14 Hi,My problem is here.At first, I segmented the payoff diagram into 3 parts and I defined = 1 if = 0 otherwise = 1 if = 0 otherwise = 1 if = 0 otherwiseI have applied the Martingale Pricing Method to price this option.Denote Q: risk neutral probability measure C= = Based on 2-10 of my textbook,Based on 2-11 of my textbook, = = Thus,C= [Denote d1_K2= plug into K in d1(by BS model)]C= e^(-rT)*{(S_0e^[(r-q)T][N(d1_K1)-N(d1_K2)-N(d1_K3)+N(d1_K4)]-K1[N(d2_K1)-N(d2_K4)]+K2[N(d2_K2)-N(d2_K4)]+K3[N(d2_K3)-N(d2_K4)]}However, I used Monte Carlo Simulation to price this option and got a different answer.I wonder what mistakes I have made, thank you.
 nikol Total Posts: 1195 Joined: Jun 2005
 Posted: 2020-04-27 14:18 Answer 1: your implementation of MC has a bug.
 paulchen Total Posts: 2 Joined: Apr 2020
 Posted: 2020-05-03 08:04 I have found the mistake, thanks.
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