Journal of Computational Finance

Risk.net

Efficient variations of the Fourier transform in applications to option pricing

Svetlana Boyarchenko and Sergei Levendorski˘ı

ABSTRACT

In this paper, we clarify the relationships among popular methods for pricing European options based on the Fourier expansion of the payoff function (iFT method) and the simlified trapezoid rule.We suggest new variations that allow us to decrease the number of terms by a factor of between five and ten (when the iFT requires several dozen terms), or even by a factor of several dozen or a hundred (when the iFT may need thousands or millions of terms). We also give efficient recommendations for an (approximately) optimal choice of parameters for each numerical scheme.

Sorry, our subscription options are not loading right now

Please try again later. Get in touch with our customer services team if this issue persists.

New to Risk.net? View our subscription options

You need to sign in to use this feature. If you don’t have a Risk.net account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here