Two-dimensional Fourier cosine series expansion method for pricing financial options
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.
|Date of creation:||Nov 2012|
|Date of revision:|
|Contact details of provider:|| Postal: Postbus 80510, 2508 GM Den Haag|
Phone: (070) 338 33 80
Fax: (070) 338 33 50
Web page: http://www.cpb.nl/
More information through EDIRC
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.:
- Agnieszka Janek & Tino Kluge & RafaÅ‚ Weron & Uwe Wystup, 2010.
"FX Smile in the Heston Model,"
SFB 649 Discussion Papers
SFB649DP2010-047, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
- Janek, Agnieszka & Kluge, Tino & Weron, Rafal & Wystup, Uwe, 2010. "FX Smile in the Heston Model," MPRA Paper 25491, University Library of Munich, Germany.
- Agnieszka Janek & Tino Kluge & Rafal Weron & Uwe Wystup, 2010. "FX Smile in the Heston Model," Papers 1010.1617, arXiv.org.
- Agnieszka Janek & Tino Kluge & Rafal Weron & Uwe Wystup, 2010. "FX Smile in the Heston Model," HSC Research Reports HSC/10/02, Hugo Steinhaus Center, Wroclaw University of Technology.
- Fang, Fang & Oosterlee, Kees, 2008.
"A Novel Pricing Method For European Options Based On Fourier-Cosine Series Expansions,"
7700, University Library of Munich, Germany.
- Fang, Fang & Oosterlee, Kees, 2008. "A Novel Pricing Method For European Options Based On Fourier-Cosine Series Expansions," MPRA Paper 9319, University Library of Munich, Germany.
- Stulz, ReneM., 1982. "Options on the minimum or the maximum of two risky assets : Analysis and applications," Journal of Financial Economics, Elsevier, vol. 10(2), pages 161-185, July.
- Stefano, Pagliarani & Pascucci, Andrea & Candia, Riga, 2011. "Expansion formulae for local Lévy models," MPRA Paper 34571, University Library of Munich, Germany.
- 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, vol. 6(2), pages 327-43.
- Leif Andersen & Mark Broadie, 2004. "Primal-Dual Simulation Algorithm for Pricing Multidimensional American Options," Management Science, INFORMS, vol. 50(9), pages 1222-1234, September.
- Roger Lord & Christian Kahl, 2006. "Why the Rotation Count Algorithm works," Tinbergen Institute Discussion Papers 06-065/2, Tinbergen Institute.
- 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.
- Boyle, Phelim P., 1988. "A Lattice Framework for Option Pricing with Two State Variables," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 23(01), pages 1-12, March.
- Berridge, S.J. & Schumacher, J.M., 2004. "Pricing High-Dimensional American Options Using Local Consistency Conditions," Discussion Paper 2004-19, Tilburg University, Center for Economic Research.
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 references are entirely missing, you can add them using this form.