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2017-08

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Please use this identifier to cite or link to this item: https://hdl.handle.net/2445/115443

Pricing early-exercise and discrete barrier options by Shannon wavelet expansions

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https://doi.org/10.1007/s00211-016-0858-2

Abstract

We present a pricing method based on Shannon wavelet expansions for early-exercise and discretely-monitored barrier options under exponential Lévy asset dynamics. Shannon wavelets are smooth, and thus approximate the densities that occur in finance well, resulting in exponential convergence. Application of the Fast Fourier Transform yields an efficient implementation and since wavelets give local approximations, the domain boundary errors can be naturally resolved, which is the main improvement over existing methods.

Subject

Anàlisi de Fourier, Transformacions (Matemàtica), Anàlisi financera

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Fourier analysis, Transformations (Mathematics), Investment analysis

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Articles publicats en revistes (Econometria, Estadística i Economia Aplicada)

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MAREE, Stef C., ORTIZ GRACIA, Luis and OOSTERLEE, C. W. (Cornelis W.). Pricing early-exercise and discrete barrier options by Shannon wavelet expansions. Numerische Mathematik. 2017. Vol. 136, num. 4, pags. 1035-1070. ISSN 0029-599X. [consulted: 7 of June of 2026]. Available at: https://hdl.handle.net/2445/115443

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