#TITLE_ALTERNATIVE#

• Main Author: TAMPUBOLON (NIM 10105081), GUSMARINA
• Format: Final Project
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/18566
• Institution: Institut Teknologi Bandung

Barrier option is one of many types' exotic options which are often traded in the derivative market. The European barrier options, in the form of barrier as a constant function or as an exponential barrier, are the famous one of the barrier options types. The analytical solutions for these options can be solved by the Merton's formula. In fact, many people in the derivative market prefer in using the lattice method for pricing the barrier options for its e¤ectiveness. The standard trinomial model as one of lattice methods is not good enough for pricing the barrier options. It is because the numerical solutions in this model are less accurate than the analytical one. The main failure for the inaccurateness is the position of the asset price which is not exactly at the barrier. In this final paper, the writes explains the modification of the standard trinomial model called Ritchken's trinomial model. The Ritchken's model stressed to choosing the correct stretch parameter to force the assets prices on any layer similar to barrier. This model is very effective and accurate for pricing the barrier options not only for options with constant barrier but also for options with exponential barrier. The effectiveness and the accurateness can be shown from the numerical results which are very close with the analytical solutions. <br />