Universal option valuation using quadrature methods

• 成果类型: Article
• 署名作者: Andricopoulos, AD; Widdicks, M; Duck, PW; Newton, DP
• 署名单位: University of Manchester; University of Manchester
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/S0304-405X(02)00257-X
• 发表日期: 2003
• 页码: 447-471
• 关键词: quadrature; Option valuation; Numerical techniques; barrier options; lookback options

摘要

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. (C) 2002 Published by Elsevier Science B.V.