Article ID: | iaor2008814 |
Country: | United States |
Volume: | 53 |
Issue: | 5 |
Start Page Number: | 764 |
End Page Number: | 779 |
Publication Date: | Sep 2005 |
Journal: | Operations Research |
Authors: | Yamamoto Y., Broadie Mark |
Keywords: | numerical analysis |
This paper develops algorithms for the pricing of discretely sampled barrier, lookback, and hindsight options and discretely exercisable American options. Under the Black–Scholes framework, the pricing of these options can be reduced to evaluation of a series of convolutions of the Gaussian distribution and a known function. We compute these convolutions efficiently using the double-exponential integration formula and the fast Gauss transform. The resulting algorithms have computational complexity of