Numerical Pricing of Bermudan Options with Shannon Wavelet Expansions

Title

Numerical Pricing of Bermudan Options with Shannon Wavelet Expansions

 Author

Maree, S.C.

Contributor

Oosterlee, C.W. (mentor)
Ortiz-Gracia, L. (mentor)

Faculty

Electrical Engineering, Mathematics and Computer Science

 Department

Delft Institute of Applied Mathematics

 Date

2015-08-28

 Abstract

This thesis is about pricing Bermudan options with the SWIFT method (Shannon Wavelets Inverse Fourier Technique). We reformulate the SWIFT pricing formula for European options to improve robustness, which allows us to heuristically select - and test the goodness - of all of the parameters a priori. Furthermore, we propose a simplified version of the SWIFT method, based on the Whittaker-Shannon sampling theory, which is an easy to implement method that posses algebraic convergence in the pricing of European and Bermudan options. The main contribution of this thesis is a new pricing method for Bermudan options by the SWIFT method, for exponential Levy processes using the Fast Fourier Transform. We compare the results of the SWIFT method to those of the COS method.

 Subject

option pricing
Bermudan options
exponential levy processes
wavelet series approximations
Shannon wavelets
Shannon-Whittaker sampling theory
Fourier transform inversion

 To reference this document use:

http://resolver.tudelft.nl/uuid:a080360d-9eeb-4b0d-9613-0c736f8769e5

 Part of collection

Student theses

 Document type

master thesis

 Rights

(c) 2015 Maree, S.C.
Files
PDF SMaree_MScThesis_SWIFT_Bermudan.pdf 1.35 MB
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