ASYMMETRIC SQUARE ROOT OPTIONS – CAN WE PRICE THEM VIA THE FOURIER TRANSFORM?
ASYMMETRIC SQUARE ROOT OPTIONS – CAN WE PRICE THEM VIA THE FOURIER TRANSFORM?

Summary/Abstract: The aim of this article is to investigate computational speed and convergence of asymmetric square root options’ pricing in the F. Black and M. Scholes setting. The methodology of the conducted research is based on the comparison of pricing efficiency of the contracts with the use of BS, FT-BM and FT-B methods (including two different numerical schemes). Based on obtained results, it can be concluded that the BS method is better than methods based on the Fourier transform. However, it can be used only in the F. Black and M. Scholes setting. When analyzing other models, e.g. stochastic volatility models, one should use model based on the Fourier transform. Among those described in the article, the most efficient is FT-B with Clenshaw-Curtis numerical rule.

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