Spread Option Pricing on Single-Core and Parallel Computing Architectures

10 Pages Posted: 8 Oct 2019

See all articles by Shiam Kannan

Shiam Kannan

Cornell University

Mesias Alfeus

Department of Statistics and Actuarial Science - Stellenbosch University

Date Written: September 20, 2019

Abstract

This paper introduces parallel computation for spread options using two-dimensional Fourier transform. Spread options are multi-asset options whose payoffs depend on the difference of two underlying financial securities. Pricing these securities, however, cannot be done using closed-form methods; as such, we propose an algorithm which employs the fast Fourier Transform (FFT) method to numerically solve spread option prices in a reasonable amount of short time while preserving the pricing accuracy. Our results indicate a significant increase in computational performance when the algorithm is performed on multiple CPU cores and GPU. Moreover, the literature on spread option pricing using FFT methods documents that the pricing accuracy increases with FFT grid size while the computational speed has opposite effect. By using the multi-core/GPU implementation, the trade-off between pricing accuracy and speed is taken into account effectively.

Keywords: Spread Option, Single Core, Parallel Computing

JEL Classification: C00, C63, C88

Suggested Citation

Kannan, Shiam and Alfeus, Mesias, Spread Option Pricing on Single-Core and Parallel Computing Architectures (September 20, 2019). Available at SSRN: https://ssrn.com/abstract=3457036 or http://dx.doi.org/10.2139/ssrn.3457036

Shiam Kannan (Contact Author)

Cornell University ( email )

Ithaca, NY
United States
9083342916 (Phone)

Mesias Alfeus

Department of Statistics and Actuarial Science - Stellenbosch University ( email )

Matieland
m
Stellenbosch, 7602
South Africa
0633236629 (Phone)
7405 (Fax)

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