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Studies in Nonlinear Dynamics & Econometrics

Ed. by Mizrach, Bruce

5 Issues per year


IMPACT FACTOR 2016: 0.649

CiteScore 2016: 0.63

SCImago Journal Rank (SJR) 2016: 0.546
Source Normalized Impact per Paper (SNIP) 2016: 0.793

Mathematical Citation Quotient (MCQ) 2016: 0.03

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1558-3708
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Volume 19, Issue 5 (Dec 2015)

Issues

Fourier inversion formulas for multiple-asset option pricing

Bruno Feunou
  • Corresponding author
  • Bank of Canada, 234, Wellington Street, Ottawa, ON, K1A 0G9, Canada
  • Email:
/ Ernest Tafolong
  • National Bank of Canada, 1155 Metcalfe Street, Montreal, QC H3B 4S9, Canada
Published Online: 2015-03-07 | DOI: https://doi.org/10.1515/snde-2014-0034

Abstract

Plain vanilla options have a single underlying asset and a single condition on the payoff at the expiration date. For this class of options, a well known result of Duffie, Pan, and Singleton (Duffie, D., J. Pan, and K. Singleton. 2000. “Transform Analysis and Asset Pricing for Affine Jump-Diffusions.” Econometrica 68: 1343–1376. http://dx.doi.org/10.1111/1468-0262.00164.) shows how to invert the characteristic function to obtain a closed-form formula for their prices. However, multiple-asset and multiple-condition derivatives such as rainbow options cannot be priced within this framework. This paper provides an analytical solution for options whose payoffs depends on two or more conditions. We take the advantage of the inversion of the Fourier transform, resorting to neither Black and Scholes’s framework, nor the affine models’s settings. Numerical experiments based on the aforementioned class of derivatives are provided to illustrate the usefulness of the proposed approach.

This article offers supplementary material which is provided at the end of the article.

Keywords: derivatives pricing; Fourier-Stieltjes transform; multiple triggers payoff

JEL classifications:: G12

References

About the article

Corresponding author: Bruno Feunou, Bank of Canada, 234, Wellington Street, Ottawa, ON, K1A 0G9, Canada, Phone: +(613) 782-8302, Fax: +(613) 782-7713, e-mail:


Published Online: 2015-03-07

Published in Print: 2015-12-01


Citation Information: Studies in Nonlinear Dynamics & Econometrics, ISSN (Online) 1558-3708, ISSN (Print) 1081-1826, DOI: https://doi.org/10.1515/snde-2014-0034.

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