Precise option pricing by the COS method—How to choose the truncation range
نویسندگان
چکیده
The Fourier cosine expansion (COS) method is used for pricing European options numerically very fast. To apply the COS method, a truncation range density of log-returns need to be provided. Using Markov’s inequality, we derive new formula obtain and prove that large enough ensure convergence within predefined error tolerance. We also show by several examples classical approach determine cumulants may lead serious mispricing. Usually, computational time similar magnitude in both cases.
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ژورنال
عنوان ژورنال: Applied Mathematics and Computation
سال: 2022
ISSN: ['1873-5649', '0096-3003']
DOI: https://doi.org/10.1016/j.amc.2022.126935