Efficient Options Pricing Using the Fast Fourier Transform

24 Pages Posted: 11 Jan 2010

See all articles by Kwai Sun Leung

Kwai Sun Leung

Hong Kong University of Science & Technology (HKUST)

Hoi Ying Wong

The Chinese University of Hong Kong (CUHK) - Department of Statistics

Yue Kuen Kwok

Hong Kong University of Science & Technology - Department of Mathematics

Date Written: January 11, 2010

Abstract

The Fourier transform methods provide the valuable and indispensable tools for option pricing under L´evy processes since the analytic representation of the haracteristic function of the underlying asset return is more readily available than that of the density function itself. When used together with the FFT algorithms, real time pricing of a wide range of option models under L'evy processes can be delivered using the Fourier transform approach with highaccuracy, efficiency and reliability. In particular, option prices across the whole spectrum of strikes can be obtained in one set of FFT calculations. In this paper, we demonstrate the effective use of the Fourier transformapproach as an effective tool in pricing options.

Keywords: option pricing, Fast Fourier transform, Levy processes, numerical algorithms

JEL Classification: G13

Suggested Citation

Leung, Kwai Sun and Wong, Hoi Ying and Kwok, Yue Kuen, Efficient Options Pricing Using the Fast Fourier Transform (January 11, 2010). Available at SSRN: https://ssrn.com/abstract=1534544 or http://dx.doi.org/10.2139/ssrn.1534544

Kwai Sun Leung

Hong Kong University of Science & Technology (HKUST) ( email )

Clearwater Bay
Kowloon, 999999
Hong Kong

Hoi Ying Wong

The Chinese University of Hong Kong (CUHK) - Department of Statistics ( email )

Shatin, N.T.
Hong Kong

Yue Kuen Kwok (Contact Author)

Hong Kong University of Science & Technology - Department of Mathematics ( email )

Clearwater Bay
Kowloon, 999999
Hong Kong

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
767
Abstract Views
4,554
Rank
50,981
PlumX Metrics