Pricing cumulative parisian options

Abstract

We consider FSG(Forward Shooting Grid)} method to price the value of CPO(Cumulative Parisian Options). CPO is a kind of barrier option with some constraints. An analytic solution to Black-Sholes PDE of CPO is not found yet and there are a few numerical approach to get the value. FSG is an efficient hybrid of a tree method to price path dependent options, which is known to give precise results. We apply FSG of both binomial and trinomial case to price the value of CPO. As an application to Korean option market, we compute the value of CPO if the underlying asset is a stock of Samsung Electronics Co. by using FSG method.