Saddlepoint approximations to option price in a general equilibrium model

Jian Xiong, Augustine Wong and Donna Salopek

Statistics & Probability Letters, 2005, vol. 71, issue 4, 361-369

Abstract: In the recent literature on option valuation, Fourier analysis has been successfully applied to determine numerically the prices of options. However, most of these numerical methods can both be slow and inaccurate. Rogers and Zane (Ann. Appl. Probab. 9 (1999) 493-503) first propose the application of the saddlepoint approximation method to compute European-type options. In this paper, we extend their approach to price a variety of European options, and in particular, when the return process of a general equilibrium model has stochastic volatility and stochastic interest rates. The model is calibrated on the S&P 500 index, and we also discuss the pros and cons of saddlepoint approximations.

Keywords: Option; pricing; Saddlepoint; approximations; Stochastic; interest; rates; Stochastic; volatility (search for similar items in EconPapers)
Date: 2005
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0167-7152(05)00007-6
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:stapro:v:71:y:2005:i:4:p:361-369

Ordering information: This journal article can be ordered from
http://www.elsevier.com/wps/find/supportfaq.cws_home/regional
https://shop.elsevie ... _01_ooc_1&version=01

Access Statistics for this article

Statistics & Probability Letters is currently edited by Somnath Datta and Hira L. Koul

More articles in Statistics & Probability Letters from Elsevier
Bibliographic data for series maintained by Catherine Liu ().