Asian Option Pricing with the Fast Fourier Trasformation and Simpson''s Rule
Date Issued
2009
Date
2009
Author(s)
Tien, Yu-Cheng
Abstract
In this thesis, we introduce an efficient algorithm for pricing discrete Asian options with fixed strike price. Our algorithm does not rely on the Black-Scholes assumption and is flexible for many kinds of underlying densities. Our algorithm can be applied to capturing many empirical phenomena, such as fat-tail effect. Based on the Fast Fourier Transform (FFT), our algorithm using Simpson’s rule and the 3rd-order polynomial interpolation is an enhanced version of the algorithms of Carverhill and Clewlow (1992) and Benhamou (2002). The contribution of this thesis is an improved convergence rate to the order of 4.
Subjects
Asian Option
Fast Fourier Transformation
FFT
convolution
polynomial interpolation
Type
thesis
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