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Pricing Extendible Options Using the Fast Fourier Transform

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. pp. 1-7. ISSN 1024-123X

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Abstract

<jats:p>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.</jats:p>

Item Type: Article
Subjects: H Social Sciences > HG Finance
Q Science > QA Mathematics > QA75 Electronic computers. Computer science
Divisions: Faculty of Science and Health
Faculty of Science and Health > Mathematical Sciences, Department of
SWORD Depositor: Elements
Depositing User: Elements
Date Deposited: 29 Jul 2014 12:22
Last Modified: 15 Jan 2022 00:33
URI: http://repository.essex.ac.uk/id/eprint/9877

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