Pricing options with VG model using FFT

Andrey Itkin ()

Papers from arXiv.org

Abstract: We discuss various analytic and numerical methods that have been used to get option prices within a framework of the VG model. We show that some popular methods, for instance, Carr-Madan's FFT method could blow up for certain values of the model parameters even for an European vanilla option. Alternative methods - one originally proposed by Lewis, and Black-Scholes-wise method are considered that seem to work fine for any value of the VG parameters. Test examples are given to demonstrate efficiency of these methods. Convergency of all methods is also discussed.}

Date: 2005-03, Revised 2010-01
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Citations: View citations in EconPapers (6)

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