Abstract
We construct a new approximate method for pricing barrier options and CDSs. In many cases, prices of barrier options and CDS of maturities [Formula: see text] years, at the log-distance 0.1 from the barrier and farther, for eight spots, can be calculated adding up 4–16 fairly simple terms, with relative errors of order [Formula: see text] and smaller, in 4–12[Formula: see text]msc.
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