Efficient tree methods for pricing digital barrier options

TL;DR

This paper introduces an efficient lattice method for accurately pricing digital barrier options, including European and American types, under the Black-Scholes model.

Contribution

The paper presents a novel lattice procedure that improves computational efficiency and accuracy in pricing digital barrier options.

Findings

Numerical results confirm high accuracy of the method.

The approach efficiently handles both European and American options.

The method outperforms existing techniques in speed and precision.

Abstract

We propose an efficient lattice procedure which permits to obtain European and American option prices under the Black and Scholes model for digital options with barrier features. Numerical results show the accuracy of the proposed method.