Pricing options with VG model using FFT
نویسنده
چکیده
We discuss various analytic and numerical methods that have been used to get option prices within a framework of the VG model. We show that some popular methods, for instance, CarrMadan’s FFT method [1] could blow up for certain values of the model parameters even for an European vanilla option. Alternative methods one originally proposed by Lewis, and BlackScholes-wise method are considered that seem to work fine for any value of the VG parameters. Test examples are given to demonstrate efficiency of these methods. Convergency of all methods is also discussed.
منابع مشابه
PRICING STOCK OPTIONS USING FUZZY SETS
We use the basic binomial option pricing method but allow someor all the parameters in the model to be uncertain and model this uncertaintyusing fuzzy numbers. We show that with the fuzzy model we can, with areasonably small number of steps, consider almost all possible future stockprices; whereas the crisp model can consider only n + 1 prices after n steps.
متن کاملDirichlet Bridge Sampling for the Variance Gamma Process: Pricing Path-Dependent Options
T authors develop a new Monte Carlo-based method for pricing path-dependent options under the variance gamma (VG) model. The gamma bridge sampling method proposed by Avramidis et al. (Avramidis, A. N., P. L’Ecuyer, P. A. Tremblay. 2003. Efficient simulation of gamma and variance-gamma processes. Proc. 2003 Winter Simulation Conf. IEEE Press, Piscataway, NJ, 319–326) and Ribeiro and Webber (Ribe...
متن کاملOption pricing under the double stochastic volatility with double jump model
In this paper, we deal with the pricing of power options when the dynamics of the risky underling asset follows the double stochastic volatility with double jump model. We prove efficiency of our considered model by fast Fourier transform method, Monte Carlo simulation and numerical results using power call options i.e. Monte Carlo simulation and numerical results show that the fast Fourier tra...
متن کاملBarrier options pricing of fractional version of the Black-Scholes model
In this paper two different methods are presented to approximate the solution of the fractional Black-Scholes equation for valuation of barrier option. Also, the two schemes need less computational work in comparison with the traditional methods. In this work, we propose a new generalization of the two-dimensional differential transform method and decomposition method that will extend the appli...
متن کاملA Fast and Accurate Fft-based Method for Pricing Early-exercise Options under Lévy Processes
A fast and accurate method for pricing early exercise and certain exotic options in computational finance is presented. The method is based on a quadrature technique and relies heavily on Fourier transformations. The main idea is to reformulate the well-known risk-neutral valuation formula by recognising that it is a convolution. The resulting convolution is dealt with numerically by using the ...
متن کاملذخیره در منابع من
با ذخیره ی این منبع در منابع من، دسترسی به آن را برای استفاده های بعدی آسان تر کنید
عنوان ژورنال:
دوره شماره
صفحات -
تاریخ انتشار 2006