Efficient Laplace Inversion, Wiener-Hopf Factorization and Pricing Lookbacks

36 Pages Posted: 4 Jan 2012

See all articles by Svetlana Boyarchenko

Svetlana Boyarchenko

University of Texas at Austin - Department of Economics

Sergei Levendorskii

Calico Science Consulting

Date Written: January 4, 2012

Abstract

We construct very fast and accurate methods of approximate Laplace inversion, calculation of the Wiener-Hopf factors for wide classes of Levy processes with exponentially decaying Levy densities, and pricing lookback options. In all cases, we use appropriate conformal changes of variables, which allow us to apply the simplified trapezoid rule with small number of terms. The same technique is applicable for calculation of pdf's of the supremum and infimum processes, and prices and sensitivities of options with lookback and barrier features.

Keywords: Levy processes, Wiener-Hopf factorization, lookbacks, KoBoL, CGMY

JEL Classification: C63

Suggested Citation

Boyarchenko, Svetlana I. and Levendorskii, Sergei Z., Efficient Laplace Inversion, Wiener-Hopf Factorization and Pricing Lookbacks (January 4, 2012). Available at SSRN: https://ssrn.com/abstract=1979227 or http://dx.doi.org/10.2139/ssrn.1979227

Svetlana I. Boyarchenko

University of Texas at Austin - Department of Economics ( email )

Austin, TX 78712
United States

Sergei Z. Levendorskii (Contact Author)

Calico Science Consulting ( email )

Austin, TX
United States

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