Fast barrier option pricing by the COS BEM method in Heston model (with Matlab code)
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Boundary element methods for initial value and initial-boundary value problems involving PDEs (65M38) Fundamental solutions, Green's function methods, etc. for initial value and initial-boundary value problems involving PDEs (65M80) Software, source code, etc. for problems pertaining to game theory, economics, and finance (91-04) Derivative securities (option pricing, hedging, etc.) (91G20) Numerical methods (including Monte Carlo methods) (91G60)
Abstract: In this work, the Fourier-cosine series (COS) method has been combined with the Boundary Element Method (BEM) for a fast evaluation of barrier option prices. After a description of its use in the Black and Scholes (BS) model, the focus of the paper is on the application of the proposed methodology to the barrier option evaluation in the Heston model, where its contribution is fundamental to improve computational efficiency and to make BEM appealing among Finance practitioners as a valid alternative to Monte Carlo (MC) or other more traditional approaches. An error analysis is provided on the number of terms used in the Fourier-cosine series expansion, where the error bound estimation is based on the characteristic function of the log-asset price process.
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Cites work
- A closed-form solution for options with stochastic volatility with applications to bond and currency options
- A Fourier-based valuation method for Bermudan and barrier options under Heston's model
- A highly efficient Shannon wavelet inverse Fourier technique for pricing European options
- A novel pricing method for European options based on Fourier-cosine series expansions
- Conditional sampling for barrier option pricing under the Heston model
- Conditioning on One-Step Survival for Barrier Option Simulations
- Efficient computation of various valuation adjustments under local Lévy models
- Fast numerical pricing of barrier options under stochastic volatility and jumps
- Galerkin infinite element approximation for pricing barrier options and options with discontinuous payoff
- scientific article; zbMATH DE number 1999206 (Why is no real title available?)
- PDE methods for pricing barrier options
- Precise option pricing by the COS method -- how to choose the truncation range
- Pricing barrier options in the Heston model using the Heath-Platen estimator
- Pricing Bermudan options under local Lévy models with default
- Pricing early-exercise and discrete barrier options by Fourier-cosine series expansions
- Pricing early-exercise and discrete barrier options by Shannon wavelet expansions
- Robust pricing of European options with wavelets and the characteristic function
- Semi-analytical method for the pricing of barrier options in case of time-dependent parameters (with Matlab^ codes)
- The evaluation of barrier option prices under stochastic volatility
- The pricing of options and corporate liabilities
Cited in
(9)- Pricing barrier options in the Heston model using the Heath-Platen estimator
- An efficient algorithm for Bermudan barrier option pricing
- Efficient BEM-based algorithm for pricing floating strike Asian barrier options (with MATLAB\(^\circledR\) code)
- A boundary element approach to barrier option pricing in Black-Scholes framework
- Conditional sampling for barrier option pricing under the Heston model
- Fast numerical pricing of barrier options under stochastic volatility and jumps
- A Fourier-based valuation method for Bermudan and barrier options under Heston's model
- Recent advances in boundary element methods
- BEM based semi-analytical approach for accurate evaluation of arithmetic Asian barrier options
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