A Highly Efficient Shannon Wavelet Inverse Fourier Technique for Pricing European Options

Luis Ortiz-Gracia, Cornelis W. Oosterlee

Research output: Contribution to journalArticleScientificpeer-review

43 Citations (Scopus)
63 Downloads (Pure)

Abstract

In the search for robust, accurate, and highly efficient financial option valuation techniques, we here present the SWIFT method (Shannon wavelets inverse Fourier technique), based on Shannon wavelets. SWIFT comes with control over approximation errors made by means of sharp quantitative error bounds. The nature of the local Shannon wavelets basis enables us to adaptively determine the proper size of the computational interval. Numerical experiments on European-style options show exponential convergence and confirm the bounds, robustness, and efficiency.

Original languageEnglish
Pages (from-to)B118-B143
Number of pages26
JournalSIAM Journal on Scientific Computing
Volume38
Issue number1
DOIs
Publication statusPublished - 26 Jan 2016

Keywords

  • European options
  • Fourier transform inversion
  • Option pricing
  • Shannon wavelets
  • Sinus cardinal function

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