An accumulator pricing method based on Fourier cosine series expansions

Deng Ding and Wenfei Wang ()
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Deng Ding: Department of Mathematics, University of Macau, Macao, China
Wenfei Wang: Department of Mathematics, University of Macau, Macao, China

International Journal of Financial Engineering (IJFE), 2015, vol. 02, issue 02, 1-16

Abstract: Accumulator is a highly path dependant derivative structure, whose underlying assets can be currency rate, stock price, power source and so on. This paper studies the accumulator pricing problems under different setting of the contract. First, we review pricing an accumulator in which the barrier is applied continuously. Second, without analytical formulae, the price of an accumulator with barrier applied discretely has to be determined by approximation or numerical methods. The Fourier cosine expansions method, initiated by Fang and Oosterlee [SIAM Journal on Scientific Computing, 31(2), 826–848], is applied to present a numerical method to solve it. The numerical results, compared with Barrier Correction method and Monte Carlo simulation method, are given to show the efficiency of the presented method. The last part gives a financial analysis about the risk hidden in an accumulator.

Keywords: Accumulator; Fourier cosine expansions; Monte Carlo simulation; discrete barrier option; option on forward (search for similar items in EconPapers)
Date: 2015
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DOI: 10.1142/S242478631550019X

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