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dc.contributor.authorHäppölä, Juho
dc.date.accessioned2017-06-08T06:32:29Z
dc.date.available2017-06-08T06:32:29Z
dc.date.issued2016-01-06
dc.identifier.urihttp://hdl.handle.net/10754/624854
dc.description.abstractWe provide a bound for the error committed when using a Fourier method to price European options when the underlying follows an exponential Levy dynamic. The price of the option is described by a partial integro-differential equation (PIDE). Applying a Fourier transformation to the PIDE yields an ordinary differential equation that can be solved analytically in terms of the characteristic exponent of the Levy process. Then, a numerical inverse Fourier transform allows us to obtain the option price. We present a novel bound for the error and use this bound to set the parameters for the numerical method. We analyze the properties of the bound for a dissipative and pure-jump example. The bound presented is independent of the asymptotic behaviour of option prices at extreme asset prices. The error bound can be decomposed into a product of terms resulting from the dynamics and the option payoff, respectively. The analysis is supplemented by numerical examples that demonstrate results comparable to and superior to the existing literature.
dc.relation.urlhttp://mediasite.kaust.edu.sa/Mediasite/Play/a03b9d319dec456694b21aecee2ff84f1d?catalog=ca65101c-a4eb-4057-9444-45f799bd9c52
dc.titleError Analysis for Fourier Methods for Option Pricing
dc.typePresentation
dc.contributor.departmentApplied Mathematics and Computational Science Program
dc.contributor.departmentComputer, Electrical and Mathematical Sciences and Engineering (CEMSE) Division
dc.conference.dateJanuary 5-10, 2016
dc.conference.nameAdvances in Uncertainty Quantification Methods, Algorithms and Applications (UQAW 2016)
dc.conference.locationKAUST
kaust.personHäppölä, Juho
refterms.dateFOA2018-06-14T05:58:40Z


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