Option Pricing with Orthogonal Polynomial Expansions

Damien Ackerer and Damir Filipović
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Damien Ackerer: Swissquote Bank
Damir Filipović: Ecole Polytechnique Fédérale de Lausanne and Swiss Finance Institute

No 17-41, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: We derive analytic series representations for European option prices in polynomial stochastic volatility models. This includes the Jacobi, Heston, Stein--Stein, and Hull--White models, for which we provide numerical case studies. We find that our polynomial option price series expansion performs as efficiently and accurately as the Fourier transform based method in the affine case.

Keywords: Option Pricing; Polynomial Diffusion Models; Stochastic Volatility; Orthogonal Polynomials (search for similar items in EconPapers)
JEL-codes: C32 G12 G13 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2017-11
New Economics Papers: this item is included in nep-ore
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1741

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