Pricing European Options by Stable Fourier-Cosine Series Expansions

Chunfa Wang

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arXiv · 1701.00886

Pricing European Options by Stable Fourier-Cosine Series Expansions

Chunfa Wang

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Abstract

The COS method proposed in Fang and Oosterlee (2008), although highly efficient, may lack robustness for a number of cases. In this paper, we present a Stable pricing of call options based on Fourier cosine series expansion. The Stability of the pricing methods is demonstrated by error analysis, as well as by a series of numerical examples, including the Heston stochastic volatility model, Kou jump-diffusion model, and CGMY model.

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Chunfa Wang. 2017-01-04. Pricing European Options by Stable Fourier-Cosine Series Expansions. https://arxiv.org/abs/1701.00886

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