A Highly Efficient Shannon Wavelet Inverse Fourier Technique for Pricing European Options

23 Pages Posted: 28 Mar 2015 Last revised: 29 Mar 2015

See all articles by Luis Ortiz-Gracia

Luis Ortiz-Gracia

University of Barcelona

Cornelis W. Oosterlee

Center for Mathematics and Computer Science (CWI)

Date Written: March 26, 2015

Abstract

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

Ortiz-Gracia, Luis and Oosterlee, Cornelis W., A Highly Efficient Shannon Wavelet Inverse Fourier Technique for Pricing European Options (March 26, 2015). Available at SSRN: https://ssrn.com/abstract=2585529 or http://dx.doi.org/10.2139/ssrn.2585529

Luis Ortiz-Gracia (Contact Author)

University of Barcelona ( email )

Diagonal, 690
08034 Barcelona
Spain

Cornelis W. Oosterlee

Center for Mathematics and Computer Science (CWI) ( email )

P.O. Box 94079
Amsterdam, NL-1090 GB
Netherlands

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