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Fourier Inversion Formulas in Option Pricing and Insurance

Title:

Fourier Inversion Formulas in Option Pricing and Insurance

Dufresne, Daniel and Garrido, José and Morales, Manuel (2006) Fourier Inversion Formulas in Option Pricing and Insurance. Technical Report. Concordia University. Department of Mathematics & Statistics, Montreal, Quebec.

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Abstract

Several authors have used Fourier inversion to compute prices of puts and calls, some using Parseval’s theorem. The expected value of max (S − K, 0) also arises in excess-of-loss or stop-loss insurance, and we show that Fourier methods may be used to compute them. In this paper, we take the idea of using Parseval’s theorem further: (1) formulas requiring weaker assumptions; (2) relationship with classical inversion theorems for probability distributions; (3) formulas for payoffs which occur in insurance. Numerical examples are provided.

Divisions:Concordia University > Faculty of Arts and Science > Mathematics and Statistics
Item Type:Monograph (Technical Report)
Authors:Dufresne, Daniel and Garrido, José and Morales, Manuel
Series Name:Department of Mathematics & Statistics. Technical Report No. 6/06
Corporate Authors:Concordia University. Department of Mathematics & Statistics
Institution:Concordia University
Date:December 2006
ID Code:6679
Deposited By:DIANE MICHAUD
Deposited On:03 Jun 2010 16:44
Last Modified:08 Dec 2010 18:21
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