Analysis of Fourier transform valuation formulas and applications
Pricing of Securities
2010-07-08 v4 Probability
Abstract
The aim of this article is to provide a systematic analysis of the conditions such that Fourier transform valuation formulas are valid in a general framework; i.e. when the option has an arbitrary payoff function and depends on the path of the asset price process. An interplay between the conditions on the payoff function and the process arises naturally. We also extend these results to the multi-dimensional case, and discuss the calculation of Greeks by Fourier transform methods. As an application, we price options on the minimum of two assets in L\'evy and stochastic volatility models.
Keywords
Cite
@article{arxiv.0809.3405,
title = {Analysis of Fourier transform valuation formulas and applications},
author = {Ernst Eberlein and Kathrin Glau and Antonis Papapantoleon},
journal= {arXiv preprint arXiv:0809.3405},
year = {2010}
}
Comments
26 pages, 3 figures, to appear in Appl. Math. Finance