Option pricing using the fast Fourier transform under the double exponential jump model with stochastic volatility and stochastic intensity

Jiexiang Huang; Wenli Zhu; Xinfeng Ruan

doi:10.1016/j.cam.2013.12.009

Option pricing using the fast Fourier transform under the double exponential jump model with stochastic volatility and stochastic intensity

Jiexiang Huang^*, Wenli Zhu, Xinfeng Ruan

^*Corresponding author for this work

Southwestern University of Finance and Economics

Research output: Contribution to journal › Article › peer-review

35 Citations (Scopus)

Abstract

This paper is based on the FFT (Fast Fourier Transform) approach for the valuation of options when the underlying asset follows the double exponential jump process with stochastic volatility and stochastic intensity. Our model captures three terms structure of stock prices, the market implied volatility smile, and jump behavior. Via the FFT method, numerical examples using European call options show effectiveness of the proposed model. Meanwhile, numerical results prove that the FFT approach is considerably correct, fast and competent.

Original language	English
Pages (from-to)	152-159
Number of pages	8
Journal	Journal of Computational and Applied Mathematics
Volume	263
DOIs	https://doi.org/10.1016/j.cam.2013.12.009
Publication status	Published - Jun 2014
Externally published	Yes

Keywords

Double exponential jump
Fast Fourier transform
Option pricing
Stochastic intensity
Stochastic volatility

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10.1016/j.cam.2013.12.009

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Huang, J., Zhu, W., & Ruan, X. (2014). Option pricing using the fast Fourier transform under the double exponential jump model with stochastic volatility and stochastic intensity. Journal of Computational and Applied Mathematics, 263, 152-159. https://doi.org/10.1016/j.cam.2013.12.009

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abstract = "This paper is based on the FFT (Fast Fourier Transform) approach for the valuation of options when the underlying asset follows the double exponential jump process with stochastic volatility and stochastic intensity. Our model captures three terms structure of stock prices, the market implied volatility smile, and jump behavior. Via the FFT method, numerical examples using European call options show effectiveness of the proposed model. Meanwhile, numerical results prove that the FFT approach is considerably correct, fast and competent.",

keywords = "Double exponential jump, Fast Fourier transform, Option pricing, Stochastic intensity, Stochastic volatility",

author = "Jiexiang Huang and Wenli Zhu and Xinfeng Ruan",

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AU - Huang, Jiexiang

AU - Zhu, Wenli

AU - Ruan, Xinfeng

N1 - Funding Information: This work is supported by the Fundamental Research Funds for the Central Universities ( JBK130401 ).

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AB - This paper is based on the FFT (Fast Fourier Transform) approach for the valuation of options when the underlying asset follows the double exponential jump process with stochastic volatility and stochastic intensity. Our model captures three terms structure of stock prices, the market implied volatility smile, and jump behavior. Via the FFT method, numerical examples using European call options show effectiveness of the proposed model. Meanwhile, numerical results prove that the FFT approach is considerably correct, fast and competent.

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KW - Stochastic intensity

KW - Stochastic volatility

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ER -

Option pricing using the fast Fourier transform under the double exponential jump model with stochastic volatility and stochastic intensity

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Keywords

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