Mathematical Finance Seminar
November 8, 2001 , 5:30 PM to 7:00 PM
Roger Lee, Stanford University and Courant Institute-NYU
Option Prices at Extreme Strikes, and Error Bounds for DFT Computations
Upper bounds on option prices at extreme strikes imply bounds on the tail
growth of the implied volatility skew. They also lead to explicit error
bounds and implementation recipes for pricing, via discrete Fourier
transform, a wide class of options on any underlying state variable whose
characteristic function is known.