Advanced Search
MyIDEAS: Login to save this paper or follow this series

Two-dimensional Fourier cosine series expansion method for pricing financial options

Contents:

Author Info

  • Marjon Ruijter

    ()

  • Kees Oosterlee (CWI)
Registered author(s):

    Abstract

    In financial markets, traders deal in assets and options. There exist many types of options and the best-known are the European call and put option. These options give holders the right to buy or sell assets at a specific future time for a predetermined price. This paper examines options of which the payoff depends on two or more different assets. It may involve, for example, an average or the maximum of several asset prices. For pricing options, different types of numerical methods are available, such as Monte Carlo simulation techniques and partial differential equation methods. We apply a method based on Fourier cosine series expansions, called the COS method. We extend this method to higher dimensions with a multidimensional asset-price process and perform extensive numerical experiments. �

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.cpb.nl/sites/default/files/publicaties/download/cpb-discussion-paper-225-two-dimensional-fourier-cosine-series-expansion-method-pricing-financial-op_0.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by CPB Netherlands Bureau for Economic Policy Analysis in its series CPB Discussion Paper with number 225.

    as in new window
    Length:
    Date of creation: Nov 2012
    Date of revision:
    Handle: RePEc:cpb:discus:225

    Contact details of provider:
    Postal: Postbus 80510, 2508 GM Den Haag
    Phone: (070) 338 33 80
    Fax: (070) 338 33 50
    Email:
    Web page: http://www.cpb.nl/
    More information through EDIRC

    Related research

    Keywords:

    Find related papers by JEL classification:

    This paper has been announced in the following NEP Reports:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Janek, Agnieszka & Kluge, Tino & Weron, Rafal & Wystup, Uwe, 2010. "FX Smile in the Heston Model," MPRA Paper 25491, University Library of Munich, Germany.
    2. Fang, Fang & Oosterlee, Kees, 2008. "A Novel Pricing Method For European Options Based On Fourier-Cosine Series Expansions," MPRA Paper 7700, University Library of Munich, Germany.
    3. Heston, Steven L, 1993. "A Closed-Form Solution for Options with Stochastic Volatility with Applications to Bond and Currency Options," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 6(2), pages 327-43.
    4. Leif Andersen & Mark Broadie, 2004. "Primal-Dual Simulation Algorithm for Pricing Multidimensional American Options," Management Science, INFORMS, INFORMS, vol. 50(9), pages 1222-1234, September.
    5. Berridge, S.J. & Schumacher, J.M., 2004. "Pricing High-Dimensional American Options Using Local Consistency Conditions," Discussion Paper, Tilburg University, Center for Economic Research 2004-19, Tilburg University, Center for Economic Research.
    6. Fang, Fang & Oosterlee, Kees, 2008. "Pricing Early-Exercise and Discrete Barrier Options by Fourier-Cosine Series Expansions," MPRA Paper 9248, University Library of Munich, Germany.
    7. Stefano, Pagliarani & Pascucci, Andrea & Candia, Riga, 2011. "Expansion formulae for local Lévy models," MPRA Paper 34571, University Library of Munich, Germany.
    8. Roger Lord & Christian Kahl, 2006. "Why the Rotation Count Algorithm works," Tinbergen Institute Discussion Papers, Tinbergen Institute 06-065/2, Tinbergen Institute.
    9. Boyle, Phelim P., 1988. "A Lattice Framework for Option Pricing with Two State Variables," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 23(01), pages 1-12, March.
    10. Stulz, ReneM., 1982. "Options on the minimum or the maximum of two risky assets : Analysis and applications," Journal of Financial Economics, Elsevier, Elsevier, vol. 10(2), pages 161-185, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:cpb:discus:225. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.