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Pricing extendible options using the fast Fourier transform


Citation

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

Abstract

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.


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Additional Metadata

Item Type: Article
Divisions: Faculty of Science
Institute for Mathematical Research
DOI Number: https://doi.org/10.1155/2014/831470
Publisher: Hindawi Publishing Corporation
Keywords: Extendible options; Fast Fourier transform; Price options
Depositing User: Nurul Ainie Mokhtar
Date Deposited: 29 Dec 2015 07:37
Last Modified: 29 Dec 2015 07:37
Altmetrics: http://www.altmetric.com/details.php?domain=psasir.upm.edu.my&doi=10.1155/2014/831470
URI: http://psasir.upm.edu.my/id/eprint/35048
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