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Autor: Umberto Cherubini
ISBN-13: 9780470688229
Einband: E-Book
Seiten: 256
Sprache: Englisch
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Fourier Transform Methods in Finance

Wiley Finance Series
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1
In recent years, Fourier transform methods have emerged as one ofthe major methodologies for the evaluation of derivative contracts,largely due to the need to strike a balance between the extensionof existing pricing models beyond the traditionalBlack-Scholes setting and a need to evaluate pricesconsistently with the market quotes.
Fourier Transform Methods in Finance is a practical andaccessible guide to pricing financial instruments using Fouriertransform. Written by an experienced team of practitioners andacademics, it covers Fourier pricing methods; the dynamics of assetprices; non stationary market dynamics; arbitrage free pricing;generalized functions and the Fourier transform method.

Readers will learn how to:
* compute the Hilbert transform of the pricing kernel under aFast Fourier Transform (FFT) technique
* characterise the price dynamics on a market in terms of thecharacteristic function, allowing for both diffusive processes andjumps
* apply the concept of characteristic function to non-stationaryprocesses, in particular in the presence of stochastic volatilityand more generally time change techniques
* perform a change of measure on the characteristic function inorder to make the price process a martingale
* recover a general representation of the pricing kernel of theeconomy in terms of Hilbert transform using the theory ofgeneralised functions
* apply the pricing formula to the most famous pricing models,with stochastic volatility and jumps.

Junior and senior practitioners alike will benefit from thisquick reference guide to state of the art models and marketcalibration techniques. Not only will it enable them to write analgorithm for option pricing using the most advanced models,calibrate a pricing model on options data, and extract the impliedprobability distribution in market data, they will also understandthe most advanced models and techniques and discover how thesetechniques have been adjusted for applications in finance.

ISBN 978-0-470-99400-9
4
Preface.

List of Symbols.

1 Fourier Pricing Methods.

1.1 Introduction.

1.2 A general representation of option prices.

1.3 The dynamics of asset prices.

1.4 A generalized function approach to Fourier pricing.

1.5 Hilbert transform.

1.6 Pricing via FFT.

1.7 Related literature.

2 The Dynamics of Asset Prices.

2.1 Introduction.

2.2 Efficient markets and Lévy processes.

2.3 Construction of Lévy markets.

2.4 Properties of Lévy processes.

3 Non-stationary Market Dynamics.

3.1 Non-stationary processes.

3.2 Time changes.

3.3 Simulation of Lévy processes.

4 Arbitrage-Free Pricing.

4.1 Introduction.

4.2 Equilibrium and arbitrage.

4.3 Arbitrage-free pricing.

4.4 Derivatives.

4.5 Lévy martingale processes.

4.6 Lévy markets.

5 Generalized Functions.

5.1 Introduction.

5.2 The vector space of test functions.

5.3 Distributions.

5.4 The calculus of distributions.

5.5 Slow growth distributions.

5.6 Function convolution.

5.7 Distributional convolution.

5.8 The convolution of distributions in S.

6 The Fourier Transform.

6.1 Introduction.

6.2 The Fourier transformation of functions.

6.3 Fourier transform and option pricing.

6.4 Fourier transform for generalized functions.

6.5 Exercises.

6.6 Fourier option pricing with generalized functions.

7 Fourier Transforms at Work.

7.1 Introduction.

7.2 The Black-Scholes model.

7.3 Finite activity models.

7.4 Infinite activity models.

7.5 Stochastic volatility.

7.6 FFT at work.

Appendices.

A Elements of probability.

A.1 Elements of measure theory.

A.2 Elements of the theory of stochastic processes.

B Elements of Complex Analysis.

B.1 Complex numbers.

B.2 Functions of complex variables.

C Complex Integration.

C.1 Definitions.

C.2 The Cauchy-Goursat theorem.

C.3 Consequences of Cauchy's theorem.

C.4 Principal value.

C.5 Laurent series.

C.6 Complex residue.

C.7 Residue theorem.

C.8 Jordan's Lemma.

D Vector Spaces and Function Spaces.

D.1 Definitions.

D.2 Inner product space.

D.3 Topological vector spaces.

D.4 Functionals and dual space.

E The Fast Fourier Transform.

E.1 Discrete Fourier transform.

E.2 Fast Fourier transform.

F The Fractional Fourier Transform.

F.1 Circular matrix.

F.2 Toepliz matrix.

F.3 Some numerical results.

G Affine Models: The Path Integral Approach.

G.1 The problem.

G.2 Solution of the Riccati equations.

Bibliogrsphy.

Index.

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Autor: Umberto Cherubini
ISBN-13 :: 9780470688229
ISBN: 047068822X
Verlag: John Wiley & Sons
Seiten: 256
Sprache: Englisch
Auflage 1. Auflage
Sonstiges: Ebook