@article {Anderluh75, author = {Jasper Anderluh and Ludolf Meester}, title = {Pricing Options with Non-Standard Barrier Mechanisms}, volume = {21}, number = {2}, pages = {75--88}, year = {2013}, doi = {10.3905/jod.2013.21.2.075}, publisher = {Institutional Investor Journals Umbrella}, abstract = {Monte Carlo simulation is generally required when a derivaMonte Carlo simulation is generally required when a derivative{\textquoteright}s payoff is path dependent. For many such instruments, the payoff depends on whether the price of the underlying reaches a stopping point before option expiration, such as the default time for a credit product, or a knock-out barrier. For more complicated products like {\textquotedblleft}Parisian{\textquotedblright} options, the issue is not just penetrating a fixed price barrier, but how long the asset price stays beyond it. In this article, the authors show how valuation of these instruments can be speeded up, sometimes by a remarkable amount, by modeling the (sequence of) hitting times and filling in the in-between prices as needed. An important tool in doing this is the authors{\textquoteright} new technique for simulating paths backward from a future barrier crossing. One additional advantage of their method is that it is possible to use a broad range of simpler derivatives as control variates in the simulation. They provide pseudocode for the procedure in an Appendix.TOPICS: Options, simulations}, issn = {1074-1240}, URL = {https://jod.pm-research.com/content/21/2/75}, eprint = {https://jod.pm-research.com/content/21/2/75.full.pdf}, journal = {The Journal of Derivatives} }