Table of Contents
ISRN Applied Mathematics
Volume 2011, Article ID 518172, 7 pages
http://dx.doi.org/10.5402/2011/518172
Research Article

Fourier Transform of Lookback Option Price

Department of Mathematics, China Jiliang University, Hangzhou 310018, China

Received 4 September 2011; Accepted 9 October 2011

Academic Editor: H. Y. Chung

Copyright © 2011 Cheng Wang et al. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

The Fourier transform of the damped price of Lookback option under B-S model is presented. Thus, the Lookback option across a range of strikes can be simultaneously priced via FFT algorithm. FFT algorithm is more efficient than both Monte Carlo simulation method and the integral of the usual pricing formula. In addition, by FFT algorithm, investors can easily capture the sensitivity of option prices when the strike prices vary as to make reasonable investment decisions.