Universal option valuation using quadrature methods
By Ari D. Andricopoulos, Martin Widdicks, Peter W. Duck, David P. Newton. 2003
149 citations recorded by the source corpus.
Abstract This paper proposes and develops a novel, simple, widely applicable numerical approach for option pricing based on quadrature methods. Though in some ways similar to lattice or finite-difference schemes, it possesses exceptional accuracy and speed. Discretely monitored options are valued with only one timestep between observations, and nodes can be perfectly placed in relation to discontinuities. Convergence is improved greatly; in the extrapolated scheme, a doubling of points can reduce error by a factor of 256. Complex problems (e.g., fixed-strike lookback discrete barrier options) can be evaluated accurately and orders of magnitude faster than by existing methods.
Subfields: Finance
View Paper: https://www.semanticscholar.org/paper/55bf2fb91ef8c829c2d52de991bb6085a3bf8371
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In Finance
- Ari D. Andricopoulos
- Martin Widdicks
- Attilio Meucci
- Gianluca Fusai
- David P. Newton
- Peter W. Duck
- Sam D. Howison
Citations in the corpus
- Pricing discretely monitored Asian options under Levy processes (2008, background): “A The characteristic function of the geometric Average for a Generic Lévy processes Let Y T ln G T where G T is given in (6).”
- Extending quadrature methods to value multi-asset and complex path dependent options (2007, methodology): “ Andricopoulos et al. (2003) introduced the QUAD method for a several types of option”
- Pricing early-exercise and discrete barrier options by fourier-cosine series expansions (2009, unknown): “Recently, transform methods have been generalized to solving somewhat more complicated option contracts, like Bermudan, American or barrier options, see, for example, [32, 21, 3, 4, 29, 41, 17, 40].”