Fast Fourier Transform for Discrete Asian Options

18 Pages Posted: 10 May 2001  

Eric Benhamou

A.I. Square Connect; LAMSADE- Paris Dauphine University

Date Written: March 17, 2000

Abstract

This paper presents an efficient methodology for the discrete Asian options consistent with different types of underlying densities, especially non-normal returns as suggested by the empirical literature (Mandelbrot (1963) and Fama (1965)). Based on Fast Fourier Transform, the method is an enhanced version of the algorithm of Carverhil and Clewlow (1992). The contribution of this paper is to improve their algorithm and to adapt it to non-lognormal densities. This enables us to examine the impact of fat-tailed distribution on price as well as on delta. We find evidence that fat tails lead to wider jumps in the delta.

Keywords: Fast Fourier Transform, Asian options, Convolution, Fat-Tails.

JEL Classification: G13

Suggested Citation

Benhamou, Eric, Fast Fourier Transform for Discrete Asian Options (March 17, 2000). EFMA 2001 Lugano Meetings. Available at SSRN: https://ssrn.com/abstract=269491 or http://dx.doi.org/10.2139/ssrn.269491

Eric Benhamou (Contact Author)

A.I. Square Connect ( email )

35 Boulevard d'Inkermann
Neuilly sur Seine, 92200
France

LAMSADE- Paris Dauphine University ( email )

Place du Marechal de Lattre de Tassigny
Pais, 75016
France

HOME PAGE: http://https://www.lamsade.dauphine.fr/

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