Fourier Transform of Lookback Option Price | Zendy

Cheng Wang | Zendy; Hailei Zou | Zendy; Juncheng Yin | Zendy

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Fourier Transform of Lookback Option Price

Author(s) -

Cheng Wang,

Hailei Zou,

Juncheng Yin

Publication year - 2011

Publication title -

isrn applied mathematics

Language(s) - English

Resource type - Journals

eISSN - 2090-5572

pISSN - 2090-5564

DOI - 10.5402/2011/518172

Subject(s) - fast fourier transform , monte carlo method , range (aeronautics) , fourier transform , sensitivity (control systems) , monte carlo methods for option pricing , valuation of options , asian option , put option , computer science , mathematics , econometrics , mathematical optimization , algorithm , economics , financial economics , engineering , statistics , mathematical analysis , electronic engineering , aerospace engineering

The Fourier transform of the damped price of Lookback option under B-S model is presented. Thus, the Lookback option across a range of strikes can be simultaneously priced via FFT algorithm. FFT algorithm is more efficient than both Monte Carlo simulation method and the integral of the usual pricing formula. In addition, by FFT algorithm, investors can easily capture the sensitivity of option prices when the strike prices vary as to make reasonable investment decisions.

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