Journal of Computational Finance
ISSN:
1460-1559 (print)
1755-2850 (online)
Editor-in-chief: Christoph Reisinger
Option pricing by transform methods: extensions, unification and error control
Roger W. Lee
Abstract
ABSTRACT
We extend and unify Fourier-analytic methods for pricing a wide class of options on any underlying state variable whose characteristic function is known. In this general setting, we bound the numerical pricing error of discretized transform computations, such as DFT/FFT. These bounds enable algorithms to select efficient quadrature parameters and to price with guaranteed numerical accuracy.
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