English, Article edition: A SIMPLE AMERICAN OPTION PRICING METHOD USING THE FAST FOURIER TRANSFORM SUNEAL K. CHAUDHARY

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Physical Description
  • article
Language
  • English

Edition details

Title
  • A SIMPLE AMERICAN OPTION PRICING METHOD USING THE FAST FOURIER TRANSFORM
Author
  • SUNEAL K. CHAUDHARY
Physical Description
  • article
Notes
  • This paper describes a fast, flexible numerical technique to price American options and generate their value surface through time. The method runs faster and more accurately than the standard CRR binomial method in practical cases and calculates options on a considerably broader family of new, useful underlying asset processes. The technique relies on the Fast Fourier Transform (FFT) to convolve a transition function for the underlying asset process. The method allows the underlying asset process to be quite general; the previously known standard geometric Brownian motion and the Variance Gamma process [8], and a novel, purely empirical transition function are compared by computing their respective American put value surface and the exercise boundaries.
  • American option pricing, empirical transition kernel, numerical option pricing, LongstaffâSchwartz method, CRR method
  • RePEc:wsi:ijtafx:v:10:y:2007:i:07:p:1191-1202
Language
  • English
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