Economics and Business Review

ISSN 2392-1641
e-ISSN 2450-0097

Poznań University of Economics - Poland

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Volume 4 (18) Number 1 pp. 16-28

Arkadiusz Orzechowski

Warsaw School of Economics, Collegium of Socio-Economics, Department of Banking,Poland

Pricing correlation options: from the P. Carr and D. Madan approach to the new method based on the Fourier transform

Abstract:

Pricing of options plays an important role in the financial industry. Investors
knowing how to price derivative contracts quickly and accurately can beat the market.
On the other hand market participants constructing their investment strategies with
the use of options based on techniques that do not assure the highest computational
speed and efficiency are doomed to failure. The aim of the article is to extend the existing
methodology of pricing correlation options based on the Fourier transform. The
article starts with a presentation of Carr and Madan’s concept (Carr & Madan, 1999).
Then other methods of pricing options with the use of the Fourier transform are summarized.
Finally, a new approach to pricing derivative contracts is derived and then
applied to the correlation options.

pub/2018_1_16.pdf Full text available in in Adobe Acrobat format:
http://www.ebr.edu.pl/volume18/issue1/2018_1_16.pdf
Keywords: Fourier transform, pricing of options, correlation options.

DOI: 10.18559/ebr.2018.1.2

For citation:

MLA Orzechowski, Arkadiusz. "Pricing correlation options: from the P. Carr and D. Madan approach to the new method based on the Fourier transform." Economics and Business Review EBR 18.1 (2018): 16-28. DOI: 10.18559/ebr.2018.1.2
APA Orzechowski, A. (2018). Pricing correlation options: from the P. Carr and D. Madan approach to the new method based on the Fourier transform. Economics and Business Review EBR 18(1), 16-28 DOI: 10.18559/ebr.2018.1.2
ISO 690 ORZECHOWSKI, Arkadiusz. Pricing correlation options: from the P. Carr and D. Madan approach to the new method based on the Fourier transform. Economics and Business Review EBR, 2018, 18.1: 16-28. DOI: 10.18559/ebr.2018.1.2