Fourier Inversion Formulas in Option Pricing and Insurance

Daniel Dufresne (), Jose Garrido and Manuel Morales
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Daniel Dufresne: University of Melbourne
Jose Garrido: Concordia University
Manuel Morales: Université de Montréal

Methodology and Computing in Applied Probability, 2009, vol. 11, issue 3, 359-383

Abstract: Abstract Several authors have used Fourier inversion to compute prices of puts and calls, some using Parseval’s theorem. The expected value of max (S – K, 0) also arises in excess-of-loss or stop-loss insurance, and we show that Fourier methods may be used to compute them. In this paper, we take the idea of using Parseval’s theorem further: (1) formulas requiring weaker assumptions; (2) relationship with classical inversion theorems for probability distributions; (3) formulas for payoffs which occur in insurance. Numerical examples are provided.

Keywords: Fourier inversion; Option pricing; Stop-loss premiums; Risk theory; 42A61; 91B30 (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (9)

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DOI: 10.1007/s11009-007-9049-z

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