TL;DR
This paper enhances the COS method for option pricing by integrating NUFFT, significantly increasing computational speed when pricing multiple options with the same maturity but different strikes.
Contribution
It introduces the use of non-uniform FFT in the COS method, enabling faster computation of multiple option prices simultaneously.
Findings
Significantly faster option pricing for multiple strikes.
Efficient computation under Lévy and affine stochastic volatility models.
Potential for real-time option pricing applications.
Abstract
The COS method is a very efficient way to compute European option prices under L\'evy models or affine stochastic volatility models, based on a Fourier Cosine expansion of the density, involving the characteristic function. This note shows how to compute the COS method formula with a non-uniform fast Fourier transform, thus allowing to price many options of the same maturity but different strikes at an unprecedented speed.
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Taxonomy
TopicsStochastic processes and financial applications · Mathematical Approximation and Integration · Financial Risk and Volatility Modeling