Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/86580
Authors: 
Lord, Roger
Kahl, Christian
Year of Publication: 
2006
Series/Report no.: 
Tinbergen Institute Discussion Paper 06-066/2
Abstract: 
At the time of writing this article, Fourier inversion is the computational method of choice for a fast and accurate calculation of plain vanilla option prices in models with an analytically available characteristic function. Shifting the contour of integration along the complex plane allows for different representations of the inverse Fourier integral. In this article, we present the optimal contour of the Fourier integral, taking into account numerical issues such as cancellation and explosion of the characteristic function. This allows for robust and fast option pricing for almost all levels of strikes and maturities.
Subjects: 
option pricing
Fourier inversion
Carr-Madan
Heston
stochastic volatility
characteristic function
damping
saddlepoint approximations
JEL: 
C63
G13
Document Type: 
Working Paper

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