Option Pricing Using Fourier Transforms: A Numerically Efficient Simplification

7 Pages Posted: 23 Mar 2004

Abstract

This paper presents a simple manipulation that (i) reduces the two numerical integrations needed to compute option prices using fourier inversion into a single numerical integration and (ii) reduces the number of characteristic function evaluations needed to obtain a given level of accuracy. The simplification does not preclude the use of other numerical techniques to increase computational speed. It will primarily help in empirical studies and in model calibration, since, these are occasions when computational efficiency is critical.

Keywords: Option valuation, numerical methods, fourier inversion

JEL Classification: G13

Suggested Citation

Attari, Mukarram, Option Pricing Using Fourier Transforms: A Numerically Efficient Simplification. Available at SSRN: https://ssrn.com/abstract=520042 or http://dx.doi.org/10.2139/ssrn.520042

Mukarram Attari (Contact Author)

CRA International, Incorporated ( email )

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Ste. 700
Washington, DC 20004
United States
617-425-3336 (Phone)

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