Pricing discrete barrier and hindsight options with the tridiagonal probability algorithm

This paper develops an algorithm to calculate the Brownian multivariate nor mal probability subject to any preset error tolerance criteria. The algorit hm is founded upon the computational simplicity of the tridiagonal structur e of the inverse of the Brownian correlation matrix. Compared with existing pricing technologies without the "barrier too close" problem, our calculat ion method can produce a more accurate and efficient analytic evaluation of barrier options monitored at discrete instants with well- or ill-behaved b arrier levels, or discrete hindsight options, for a reasonably large number of monitorings.