scholarly journals Fast Fourier Transform for Option Pricing: Improved Mathematical Modeling and Design of Efficient Parallel Algorithm

2004 ◽  
pp. 686-695 ◽  
Author(s):  
Sajib Barua ◽  
Ruppa K. Thulasiram ◽  
Parimala Thulasiraman
Keyword(s):  
Mathematical Modeling ◽  
Fourier Transform ◽  
Option Pricing ◽  
Fast Fourier Transform ◽  
Parallel Algorithm

A SIMPLE AMERICAN OPTION PRICING METHOD USING THE FAST FOURIER TRANSFORM

2007 ◽  
Vol 10 (07) ◽  
pp. 1191-1202
Author(s):  
SUNEAL K. CHAUDHARY
Keyword(s):  
Fourier Transform ◽  
Brownian Motion ◽  
Option Pricing ◽  
Fast Fourier Transform ◽  
Numerical Technique ◽  
Transition Function ◽  
American Option Pricing ◽  
Underlying Asset ◽  
Variance Gamma Process ◽  
American Put

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.

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