Analysis of Fourier transform valuation formulas and applications

Abstract

The aim of this article is to provide a systematic analysis of the conditions such that Fourier transform valuation formulas are valid in a general framework; i.e. when the option has an arbitrary payoff function and depends on the path of the asset price process. An interplay between the conditions on the payoff function and the process arises naturally. We also extend these results to the multi-dimensional case, and discuss the calculation of Greeks by Fourier transform methods. As an application, we price options on the minimum of two assets in Lévy and stochastic volatility models.

26 pages, 3 figures, to appear in Appl. Math. Finance

References in corpus (4)

• Analysis of Fourier transform valuation formulas and applications
• Variance-optimal hedging for processes with stationary independent increments
• Esscher transform and the duality principle for multidimensional semimartingales
• Analyticity of the Wiener-Hopf factors and valuation of exotic options in Lévy models

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