Pricing Extendible Options Using the Fast Fourier Transform

Siti Nur Iqmal Ibrahim, John G. O'Hara and Nick Constantinou

Mathematical Problems in Engineering, 2014, vol. 2014, 1-7

Abstract:

This paper applies the fast Fourier transform (FFT) approach, within the Black-Scholes framework, to the valuation of options whose time to maturity can be extended to a future date (extendible options). We determine the valuation of the extendible options as sums of expectations of indicator functions, leading to a semianalytic expression for the value of the options over a range of strikes. Compared to Monte Carlo simulation, numerical examples demonstrate that the FFT is both computationally more efficient and higher in accuracy.

Date: 2014
References: Add references at CitEc
Citations:

Downloads: (external link)
http://downloads.hindawi.com/journals/MPE/2014/831470.pdf (application/pdf)
http://downloads.hindawi.com/journals/MPE/2014/831470.xml (text/xml)

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:hin:jnlmpe:831470

DOI: 10.1155/2014/831470

Access Statistics for this article

More articles in Mathematical Problems in Engineering from Hindawi
Bibliographic data for series maintained by Mohamed Abdelhakeem ().