A hybrid finite difference method for pricing two-asset double barrier options (Q1666349)

Summary: The pricing of the two-asset double barrier option is modeled as an initial-boundary value problem of the two-dimensional Black-Scholes partial differential equation. We use the hybrid finite different method to solve the problem. The hybrid method is a combination of the Laplace transform and a finite difference method. It is more efficient than a traditional finite difference method to obtain a solution without a step-by-step process. The method is implemented on a computer. Two numerical examples are calculated to verify the performance of the hybrid method. In our numerical examples, the convergence rate of the method is approximately two. We conclude that the method is efficient for pricing two-asset barrier options.