Abstract

http://ssrn.com/abstract=559416
 
 

References (26)



 
 

Citations (7)



 


 



Introduction to Fast Fourier Transform in Finance


Aleš Černý


Cass Business School

February 20, 2006

Cass Business School Research Paper

Abstract:     
The Fourier transform is an important tool in Financial Economics. It delivers real time pricing while allowing for a realistic structure of asset returns, taking into account excess kurtosis and stochastic volatility. Fourier transform is also rather abstract and therefore off-putting to many practitioners.

The purpose of this paper is to explain the working of the fast Fourier transform in the familiar binomial option pricing model. We argue that a good understanding of FFT requires no more than some high school mathematics and familiarity with roulette, bicycle wheel, or a similar circular object divided into equally sized segments. The returns to such a small intellectual investment are overwhelming.

Number of Pages in PDF File: 29

Keywords: Fast Fourier transform, option pricing, binomial lattice, chirp-z transform

JEL Classification: C63, G12

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Date posted: June 29, 2004  

Suggested Citation

Černý, Aleš, Introduction to Fast Fourier Transform in Finance (February 20, 2006). Cass Business School Research Paper. Available at SSRN: http://ssrn.com/abstract=559416 or http://dx.doi.org/10.2139/ssrn.559416

Contact Information

Aleš Černý (Contact Author)
Cass Business School ( email )
106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
HOME PAGE: http://www.cass.city.ac.uk/experts/a.cerny
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