We suggest new families of integral representations of pdfs and cpds of stable distributions, which lead to efficient numerical methods. The first method is based on the approximation of the characteristic exponent by functions analytic in the complex plane with two cuts i(-∞,-λ] and i[λ,...

We study sources of potentially serious errors of popular numerical realizations of the Fourier method in affine models, and explain that, in many cases, a calibration procedure based on such a realization will be able to find a "correct parameter set" only in a rather small region of the...

Several discounted utility anomalies are explained as rational choices of an agent with standard preferences and stochastic income. We define the term structure of absolute risk aversion and demonstrate that the gain-loss asymmetry is observed for small gains and losses and a general utility...

We suggest two new fast and accurate methods, Fast Wiener-Hopf method (WHF-method) and Iterative Wiener-Hopf method (IWH-method), for pricing barrier options for a wide class of L'evy processes. Both methods use the Wiener-Hopf factorization and Fast Fourier Transform algorithm. Using an...

Using the real options approach, we show that discounted utility anomalies result from the optimizing behavior of an individual with standard preferences, who perceives the utility from consumption in the future as uncertain, and believes that she can wait. The fair price (or compensation) that...

In this article we apply Carr's randomization approximation and the operator form of the Wiener-Hopf method to double barrier options in continuous time. Each step in the resulting backward induction algorithm is solved using a simple iterative procedure that reduces the problem of pricing...

We clarify the relations among different Fourier-based approaches to option pricing, and improve the B-spline probability density projection method using the sinh-acceleration technique. This allows us to efficiently separate the control of different sources of errors better than the FFT-based...