More Robust Pricing of European Options Based on Fourier Cosine Series Expansions

TL;DR

This paper introduces a more robust and efficient Fourier cosine series expansion method for pricing European options, particularly under models with known characteristic functions like Heston, improving stability across strikes.

Contribution

The paper proposes an alternative cosine series expansion formula that enhances robustness and speed in European option pricing under characteristic function models.

Findings

More stable across different strike prices.

Comparable computational speed to existing COS methods.

Effective under models with known characteristic functions.

Abstract

We present an alternative formula to price European options through cosine series expansions, under models with a known characteristic function such as the Heston stochastic volatility model. It is more robust across strikes and as fast as the original COS method.