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Special Semester on Stochastics with Emphasis on Finance
Linz, September 2008 - December 2008
Presentation: Efficient methods for pricing options with and without early exercise features

Workshop: Computational Methods with Applications in Finance, Insurance and the Life Sciences AND Stochastic Methods in Partial Differential Equations and Applications of Deterministic and Stochastic PDEs

Time: Mon, November 17, 2008, 15:00-15:50

Speaker: Cornelis Oosterlee

Abstract

In this presentation we will present our novel method for pricing options called the COS method. It is based on the Fourier-cosine expansion and relies on the availability of the characteristic function. Vectors of strikes can be priced in one computation in the European case, which is favorable for calibration. Exponential convergence is obtained for very smooth probability density functions.

Numerical experiments will cover European options under Heston's stochastic volatility and exponential Levy processes, as well as discretely monitored barrier cwoptions and Bermudan and American options.

Presentation slides (pdf, 563 KB)

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