Abstract
Original language | English |
---|---|
Pages (from-to) | 600-612 |
Number of pages | 13 |
Journal | Journal of Financial Economics |
Volume | 114 |
Issue number | 3 |
Early online date | 2 Aug 2014 |
DOIs | |
Publication status | Published - 1 Dec 2014 |
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Keywords
- Universal quadrature
- QUAD
- Option pricing
- Numerical techniques
- Transition density function
Cite this
Advancing the Universality of Quadrature Methods to Any Underlying Process for Option Pricing. / Chen, Ding; Härkönen, Hannu J; Newton, David P.
In: Journal of Financial Economics, Vol. 114, No. 3, 01.12.2014, p. 600-612.Research output: Contribution to journal › Article
}
TY - JOUR
T1 - Advancing the Universality of Quadrature Methods to Any Underlying Process for Option Pricing
AU - Chen, Ding
AU - Härkönen, Hannu J
AU - Newton, David P
PY - 2014/12/1
Y1 - 2014/12/1
N2 - Exceptional accuracy and speed for option pricing are available via quadrature (Andricopoulos, Widdicks, Duck, and Newton, 2003), extending into multiple dimensions with complex path-dependency and early exercise (Andricopoulos, Widdicks, Newton, and Duck, 2007). However, the exposition is incomplete, leaving many modelling processes outside the Black-Scholes-Merton framework unattainable. We show how to remove the remaining major block to universal application. Although this had appeared highly problematic, the solution turns out to be conceptually simple and implementation is straightforward (we provide code on the Journal of Financial Economics website at http://jfe.rochester.edu). Crucially, the method retains its speed and flexibility across complex combinations of option features but is now applicable across other underlying processes.
AB - Exceptional accuracy and speed for option pricing are available via quadrature (Andricopoulos, Widdicks, Duck, and Newton, 2003), extending into multiple dimensions with complex path-dependency and early exercise (Andricopoulos, Widdicks, Newton, and Duck, 2007). However, the exposition is incomplete, leaving many modelling processes outside the Black-Scholes-Merton framework unattainable. We show how to remove the remaining major block to universal application. Although this had appeared highly problematic, the solution turns out to be conceptually simple and implementation is straightforward (we provide code on the Journal of Financial Economics website at http://jfe.rochester.edu). Crucially, the method retains its speed and flexibility across complex combinations of option features but is now applicable across other underlying processes.
KW - Universal quadrature
KW - QUAD
KW - Option pricing
KW - Numerical techniques
KW - Transition density function
U2 - 10.1016/j.jfineco.2014.07.014
DO - 10.1016/j.jfineco.2014.07.014
M3 - Article
VL - 114
SP - 600
EP - 612
JO - Journal of Financial Economics
JF - Journal of Financial Economics
SN - 0304-405X
IS - 3
ER -