An extension of the Euler Laplace transform inversion algorithm with applications in option pricing
We show that the Euler algorithm for Laplace transform inversion can be extended to functions defined on the entire real line, if they have specific decay features. Our objective is to apply the method to option pricing problems, specifically when inverting Laplace transforms of the option price in...
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| Veröffentlicht in: | Operations research letters Jg. 32; H. 4; S. 380 - 389 |
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| Format: | Journal Article |
| Sprache: | Englisch |
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Elsevier B.V
01.07.2004
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| ISSN: | 0167-6377, 1872-7468 |
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| Abstract | We show that the Euler algorithm for Laplace transform inversion can be extended to functions defined on the entire real line, if they have specific decay features. Our objective is to apply the method to option pricing problems, specifically when inverting Laplace transforms of the option price in the logarithm of the strike. |
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| AbstractList | We show that the Euler algorithm for Laplace transform inversion can be extended to functions defined on the entire real line, if they have specific decay features. Our objective is to apply the method to option pricing problems, specifically when inverting Laplace transforms of the option price in the logarithm of the strike. |
| Author | Petrella, G. |
| Author_xml | – sequence: 1 givenname: G. surname: Petrella fullname: Petrella, G. email: gp199@columbia.edu organization: Department of IEOR, Columbia University, 331 Mudd Building, New York, NY 10027, USA |
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| Cites_doi | 10.1086/260062 10.2139/ssrn.284202 10.1145/321439.321446 10.1093/rfs/6.2.327 10.1007/BF01158520 10.1214/aoap/1177004968 10.21314/JCF.2004.114 10.21314/JCF.1998.024 10.1287/mnsc.47.7.949.9804 10.21314/JCF.2001.090 10.1090/S0025-5718-1978-0461849-9 10.21314/JCF.1999.043 10.1287/mnsc.48.8.1086.166 |
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| Keywords | Euler inversion algorithm Laplace transform Option pricing |
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| References_xml | – reference: R.W. Lee, Option pricing by transform methods: extensions, unification and error control, Stanford University, Working Paper, 2003. – reference: G. Petrella, Option pricing via Laplace transforms, Doctoral Thesis, Columbia University, 2003. – volume: 47 start-page: 949 year: 2001 end-page: 965 ident: BIB5 article-title: Pricing and hedging path-dependent options under the CEV process publication-title: Management Sci. – volume: 32 start-page: 277 year: 1978 end-page: 279 ident: BIB7 article-title: Computation of the bivariate normal integral publication-title: Math. Comput. – volume: 10 start-page: 5 year: 1992 end-page: 88 ident: BIB1 article-title: The Fourier series method for inverting transforms of probability distributions publication-title: Queueing Systems – volume: 5 start-page: 55 year: 2001 end-page: 87 ident: BIB6 article-title: Structuring, pricing and hedging double-barrier step options publication-title: J. Comput. Finance – reference: S.G. Kou, G. Petrella, H. Wang, A Laplace transform approach to option pricing under a double exponential jump diffusion model, Columbia University, Working Paper, 2003. – reference: G. Petrella, S.G. Kou, Numerical pricing of discrete barrier and lookback options via Laplace transforms, Columbia University, Working Paper submitted for publication, 2003. – volume: 81 start-page: 659 year: 1973 end-page: 683 ident: BIB2 article-title: The pricing of options and corporate liabilities publication-title: J. Political Econom. – reference: S.G. Kou, H. Wang, Option pricing under a double exponential jump diffusion process, Columbia University and Brown University, Working Paper, 2002. – volume: 2 start-page: 49 year: 1998 end-page: 74 ident: BIB9 article-title: Pricing continuous Asian options publication-title: J. Comput. 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| SubjectTerms | Euler inversion algorithm Laplace transform Option pricing |
| Title | An extension of the Euler Laplace transform inversion algorithm with applications in option pricing |
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