Option Pricing Using the Fractional Fft

Posted: 28 Apr 2005

Abstract

This paper shows how the recently developed fractional FFT algorithm (FRFT) can be used to retrieve option prices from the corresponding characteristic functions. The FRFT algorithm has the advantage of using the characteristic function information in a more efficient way than the straight FFT. Typically, therefore, fewer function evaluations are needed and substantial savings in computational time can be made. Two experiments, based on the stochastic volatility and the variance-gamma models, illustrate the benefits of using the fractional version of the FFT and show that option prices can be delivered up to 45 times faster without substantial loss of accuracy in the results.

Keywords: FFT, fractional FFT algorithm, FRFT, FRFT algorithm, option pricing

Suggested Citation

Chourdakis, Kyriakos, Option Pricing Using the Fractional Fft. Available at SSRN: https://ssrn.com/abstract=707566

Kyriakos Chourdakis (Contact Author)

FitchSolutions ( email )

101 Finsbury Pavement
London
United Kingdom

CCFEA ( email )

Wivenhoe Park
Colchester, Essex CO4 3SQ
United Kingdom

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
2,911
PlumX Metrics