Speaker: Liming Feng, Department of Industrial & Enterprise Systems Engineering, University of Illinois at Urbana-Champaig
ABSTRACT
Transform methods have been widely used for options valuation in models with explicit characteristic functions. We explore the analyticity of the characteristic functions and propose Hilbert transform based schemes for the valuation of European, American and path dependent options and Monte Carlo simulation from such characteristic functions. The schemes are easy to implement. One does not need to rely on commercial numerical packages. Despite the simplicity, they are very accurate, with exponentially decaying errors. Numerical examples illustrate the effectiveness of these schemes.