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Pricing extendible options using the fast Fourier transform

This paper applies the fast Fourier transform (FFT) approach, within the Black-Scholes framework, to the valuation of options whose time to maturity can be extended to a future date (extendible options). We determine the valuation of the extendible options as sums of expectations of indicator functi...

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Main Authors: Ibrahim, Siti Nur Iqmal, O'Hara, John G., Constantinou, Nick
Format: Article
Language:English
Published: Hindawi Publishing Corporation 2014
Online Access:http://psasir.upm.edu.my/id/eprint/35048/1/Pricing%20Extendible%20Options%20Using%20the%20Fast%20Fourier%20Transform.pdf
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spelling oai:psasir.upm.edu.my:35048 http://psasir.upm.edu.my/id/eprint/35048/ Pricing extendible options using the fast Fourier transform Ibrahim, Siti Nur Iqmal O'Hara, John G. Constantinou, Nick This paper applies the fast Fourier transform (FFT) approach, within the Black-Scholes framework, to the valuation of options whose time to maturity can be extended to a future date (extendible options). We determine the valuation of the extendible options as sums of expectations of indicator functions, leading to a semianalytic expression for the value of the options over a range of strikes. Compared to Monte Carlo simulation, numerical examples demonstrate that the FFT is both computationally more efficient and higher in accuracy. Hindawi Publishing Corporation 2014 Article PeerReviewed application/pdf en http://psasir.upm.edu.my/id/eprint/35048/1/Pricing%20Extendible%20Options%20Using%20the%20Fast%20Fourier%20Transform.pdf Ibrahim, Siti Nur Iqmal and O'Hara, John G. and Constantinou, Nick (2014) Pricing extendible options using the fast Fourier transform. Mathematical Problems in Engineering, 2014. art. no. 831470. pp. 1-7. ISSN 1024-123X; ESSN: 1563-5147 http://www.hindawi.com/journals/mpe/2014/831470/abs/ 10.1155/2014/831470
institution UPM IR
collection UPM IR
language English
description This paper applies the fast Fourier transform (FFT) approach, within the Black-Scholes framework, to the valuation of options whose time to maturity can be extended to a future date (extendible options). We determine the valuation of the extendible options as sums of expectations of indicator functions, leading to a semianalytic expression for the value of the options over a range of strikes. Compared to Monte Carlo simulation, numerical examples demonstrate that the FFT is both computationally more efficient and higher in accuracy.
format Article
author Ibrahim, Siti Nur Iqmal
O'Hara, John G.
Constantinou, Nick
spellingShingle Ibrahim, Siti Nur Iqmal
O'Hara, John G.
Constantinou, Nick
Pricing extendible options using the fast Fourier transform
author_facet Ibrahim, Siti Nur Iqmal
O'Hara, John G.
Constantinou, Nick
author_sort Ibrahim, Siti Nur Iqmal
title Pricing extendible options using the fast Fourier transform
title_short Pricing extendible options using the fast Fourier transform
title_full Pricing extendible options using the fast Fourier transform
title_fullStr Pricing extendible options using the fast Fourier transform
title_full_unstemmed Pricing extendible options using the fast Fourier transform
title_sort pricing extendible options using the fast fourier transform
publisher Hindawi Publishing Corporation
publishDate 2014
url http://psasir.upm.edu.my/id/eprint/35048/1/Pricing%20Extendible%20Options%20Using%20the%20Fast%20Fourier%20Transform.pdf
_version_ 1782721003879661568
score 12.935284

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