How popular is closed form solution?

smarttrader · October 5th, 2010, 3:11 pm

Hi All,I work with a BUY side firm and I would like to know whether it is reliable to use closed form solution in pricing exotic options like single barrier, digital etc. How reliable using Metron Reiner and Rubinstein methods of pricing standard barrier options?please replyregds

daveangel · October 5th, 2010, 5:01 pm

not reliable at all.. . especially for RKO (reverse knock out) options - those that get knocked out when in the money. usually have large risk reversals.

smarttrader · October 6th, 2010, 3:12 am

Hi daveangle,thnx for ur reply. so which method I should use while pricing such options? What do u think about MC simulation?

smarttrader · October 7th, 2010, 3:50 pm

anybody other comments on this please?