The QUAD method is a fast, flexible numerical pricing technique, widely appli-cable to many option types in its QUAD I and QUAD II versions where the underlying process has a closed-form density function or characteristic func-tion. In its most advanced version, QUAD III, sac-rificing only a little speed, it retains all the flexibility and applicability of earlier versions while covering an even greater range of underlying processes through use of approximations of the density functions. Here, we show how cases without suitable approximations can be handled by using finite difference methods for (only) that part of the calculation. We illustrate with the no arbitrage SABR model for the underlying.
- Derivatives, options, QUAD
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