Print Email Facebook Twitter Arbitrage-free methods to price European options under the SABR model Title Arbitrage-free methods to price European options under the SABR model Author Van der Have, Z. Contributor Oosterlee, C.W. (mentor) Dijkstra, T.P.T. (mentor) Faculty Electrical Engineering, Mathematics and Computer Science Department Mathematics and Computer Science Date 2015-01-28 Abstract In this thesis we discuss several methods to price European options under the SABR model. In general, methods given in literature are not free of arbitrage and/or inaccurate for long maturities. This led to the development of a new pricing approach. We extend the BCOS method from one dimension to two dimensions. This extension is necessary for application of a simplification of the BCOS method, the DCOS method, to the SABR model. In this pricing method we use the characteristic function of the discrete forward process and the Fourier-based COS method. It is possible to price European options under the SABR model for multiple strikes in one computation with the DCOS method. Besides valuing European options, we can also price Bermudan and discretely monitored barrier options with this pricing approach. Subject option pricingSABRFourier cosine expansion methodBCOS To reference this document use: http://resolver.tudelft.nl/uuid:ca07093c-44f1-40e6-8dc6-f01d9b7f61c8 Part of collection Student theses Document type master thesis Rights (c) 2015 Van der Have, Z. Files PDF masterthesis Have.pdf 1.08 MB Close viewer /islandora/object/uuid:ca07093c-44f1-40e6-8dc6-f01d9b7f61c8/datastream/OBJ/view