Single and double barrier options on more than one underlying with stochastic volatility are usually priced via Monte Carlo simulation due to the non-existence of closed-form solutions for their value. In this paper, we show a valuation method which gives prices for barrier options with one barrier per underlying in a two-dimensional stochastic covariance framework (two-asset barrier options). For a special dependence structure, the prices of some of two-asset barrier derivatives, like digital options and correlation options can be derived analytically using generalized Fourier transforms and some conditions on the characteristic functions. We study the influence of the various parameters on the these prices while showing that these formulas can be easily and quickly computed. We also extend our approach to further allow a random correlation structure.     «

Single and double barrier options on more than one underlying with stochastic volatility are usually priced via Monte Carlo simulation due to the non-existence of closed-form solutions for their value. In this paper, we show a valuation method which gives prices for barrier options with one barrier per underlying in a two-dimensional stochastic covariance framework (two-asset barrier options). For a special dependence structure, the prices of some of two-asset barrier derivatives, like digital o...     »