Pricing of the European Options by Spectral Theory
AbstractWe 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.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 17429.
Date of creation: 25 Mar 2008
Date of revision:
Options Pricing; Computation Complexity.;
Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
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