Pricing of the European Options by Spectral Theory

M.D. Dell'Era Mario

MPRA Paper from University Library of Munich, Germany

Abstract: We discuss the efficiency of the spectral method for computing the value of the European Call Options, which is based upon the Fourier series expansion. We propose a simple approach for computing accurate estimates. We consider the general case, in which the volatility is time dependent, but it is immediate extend our methodology at the case of constant volatility. The advantage to write the arbitrage price of the European Call Options as Fourier series, is matter of computation complexity. Infact, the methods used to evaluate options of this kind have a high value of computation complexity, furthermore, them have not the capacity to manage it. We can define, by an easy analytical relation, the computation complexity of the problem in the framework of general theory of the ”Function Analysis”, called The Spectral Theory.

Keywords: Options Pricing; Computation Complexity. (search for similar items in EconPapers)
JEL-codes: G12 G13 (search for similar items in EconPapers)
Date: 2008-03-25
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