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Register a new userAnalysis of Fourier transform valuation formulas and applications
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Added by
Antonis Papapantoleon
Publication date
2009
fields
Financial
and research's language is
English
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The aim of this article is to provide a systematic analysis of the conditions such that Fourier transform valuation formulas are valid in a general framework; i.e. when the option has an arbitrary payoff function and depends on the path of the asset price process. An interplay between the conditions on the payoff function and the process arises naturally. We also extend these results to the multi-dimensional case, and discuss the calculation of Greeks by Fourier transform methods. As an application, we price options on the minimum of two assets in Levy and stochastic volatility models.
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This paper deals with the problem of discrete-time option pricing by the mixed fractional version of Merton model with transaction costs. By a mean-self-financing delta hedging argument in a discrete-time setting, a European call option pricing formula is obtained. We also investigate the effect of the time-step $delta t$ and the Hurst parameter $H$ on our pricing option model, which reveals that these parameters have high impact on option pricing. The properties of this model are also explained.
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The Replica Fourier Transform is the generalization of the discrete Fourier Transform to quantities defined on an ultrametric tree. It finds use in con- junction of the replica method used to study thermodynamics properties of disordered systems such as spin glasses. Its definition is presented in a system- atic and simple form and its use illustrated with some representative examples. In particular we give a detailed discussion of the diagonalization in the Replica Fourier Space of the Hessian matrix of the Gaussian fluctuations about the mean field saddle point of spin glass theory. The general results are finally discussed for a generic spherical spin glass model, where the Hessian can be computed analytically.
This paper considers exponential utility indifference pricing for a multidimensional non-traded assets model subject to inter-temporal default risk, and provides a semigroup approximation for the utility indifference price. The key tool is the splitting method, whose convergence is proved based on the Barles-Souganidis monotone scheme, and the convergence rate is derived based on Krylovs shaking the coefficients technique. We apply our methodology to study the counterparty risk of derivatives in incomplete markets.
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