A Highly Efficient Shannon Wavelet Inverse Fourier Technique for Pricing European Options
23 Pages Posted: 28 Mar 2015 Last revised: 29 Mar 2015
Date Written: March 26, 2015
In the search for robust, accurate and highly efficient financial option valuation techniques, we here present the SWIFT method (Shannon Wavelets Inverse Fourier Technique), based on Shannon wavelets. SWIFT comes with control over approximation errors made by means of sharp quantitative error bounds.
The nature of the local Shannon wavelets basis enables us to adaptively determine the proper size of the computational interval.
Numerical experiments on European-style options confirm the bounds, robustness and efficiency.
Keywords: Option pricing, European options, Shannon wavelets, sinus cardinal function, Fourier transform inversion
JEL Classification: C63
Suggested Citation: Suggested Citation