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Fourier Cosine Expansion Approach

In: The Numerical Solution of the American Option Pricing Problem Finite Difference and Transform Approaches

Author

Listed:
  • Carl Chiarella
  • Boda Kang
  • Gunter H. Meyer

Abstract

The Fourier cosine expansion approach (COS) is developed by Fang and Oosterlee (2008) using the Cosine series expansions of the value function at the next time level and the density function. The resulting equation is called the COS formula, due to the use of Fourier cosine series expansions. Fourier series expansions and their convergence properties have been discussed in Fang and Oosterlee (2008), so we do not go into details here but refer the reader to this excellent paper.

Suggested Citation

  • Carl Chiarella & Boda Kang & Gunter H. Meyer, 2014. "Fourier Cosine Expansion Approach," World Scientific Book Chapters, in: The Numerical Solution of the American Option Pricing Problem Finite Difference and Transform Approaches, chapter 6, pages 141-168, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789814452625_0006
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