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The COS Method for Pricing Options Under Uncertain Volatility

  • M. J. RuijterEmail author
  • C. W. Oosterlee
Conference paper
Part of the Springer Proceedings in Mathematics & Statistics book series (PROMS, volume 19)

Abstract

We develop a method for pricing financial options under uncertain volatility. The method is based on the dynamic programming principle and a Fourier cosine expansion method. Local errors in the vicinity of domain boundaries, originating from the use of Fourier series expansions, may hamper the algorithm’s convergence. We use an extrapolation method to deal with these errors.

Keywords

Local Error Option Price Price Problem Geometric Brownian Motion Stochastic Control Problem 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© Springer Science+Business Media New York 2012

Authors and Affiliations

  1. 1.Centrum Wiskunde & InformaticaAmsterdamThe Netherlands
  2. 2.CPB Netherlands Bureau for Economic Policy AnalysisDen HaagThe Netherlands
  3. 3.Delft University of TechnologyDelftThe Netherlands

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