TY - GEN
T1 - Fourier Cosine Expansions and Put-Call Relations for Bermudan Options
AU - Zhang, Bowen
AU - Oosterlee, Cornelis W.
PY - 2012
Y1 - 2012
N2 - In this chapter we describe the pricing of Bermudan options by means of Fourier cosine expansions. We propose a technique to price early-exercise call options with the help of the (European) put-call parity and put-call duality relations. Direct pricing of call options with Fourier cosine expansions may give rise to some sensitivity regarding the choice of the size of the domain in which the Fourier expansion is applied. By employing the put-call parity or put-call duality relations, this can be avoided so that call options governed by fat-tailed asset price distributions can be priced as robust and efficiently as put options.
AB - In this chapter we describe the pricing of Bermudan options by means of Fourier cosine expansions. We propose a technique to price early-exercise call options with the help of the (European) put-call parity and put-call duality relations. Direct pricing of call options with Fourier cosine expansions may give rise to some sensitivity regarding the choice of the size of the domain in which the Fourier expansion is applied. By employing the put-call parity or put-call duality relations, this can be avoided so that call options governed by fat-tailed asset price distributions can be priced as robust and efficiently as put options.
KW - Early-exercise options
KW - Error analysis
KW - Fourier-cosine expansions
KW - Option pricing
KW - Put-call parity and duality
UR - http://www.scopus.com/inward/record.url?scp=84893565549&partnerID=8YFLogxK
U2 - 10.1007/978-3-642-25746-9_10
DO - 10.1007/978-3-642-25746-9_10
M3 - Conference contribution
AN - SCOPUS:84893565549
SN - 9783642257452
T3 - Springer Proceedings in Mathematics
SP - 323
EP - 350
BT - Numerical Methods in Finance
T2 - Workshop on Numerical Methods in Finance
Y2 - 1 June 2010 through 2 June 2010
ER -