TITLE:
Fast Fourier Transform of Multi-Assets Options under Economic Recession Induced Uncertainties
AUTHORS:
Philip Ajibola Bankole, Olabisi O. Ugbebor
KEYWORDS:
Fast Fourier Transform (FFT), Multi-Assets, Finite and Infinite Dimension of Assets, Economic Recession, Volatility Change, European Options
JOURNAL NAME:
American Journal of Computational Mathematics,
Vol.9 No.3,
August
30,
2019
ABSTRACT:
A Fast Fourier transform approach has been presented by Carr & Madan
(2009) on a single underlying asset. In this current research paper, we
present fast Fourier transform algorithm for the valuation of Multi-asset
Options under Economic Recession Induced Uncertainties. The issue of multi-dimension in both finite and infinite case of Options is part of the focus of
this research. The notion of economic recession was incorporated. An
intuition behind the introduction of recession induced volatility uncertainty
is revealed by huge volatility variation during the period of economic recession
compared to the period of recession-free. Nigeria economic recession
outbreak in 2016 and its effects on the uncertainty of the payoffs of Nigeria
Stocks Exchange (NSE) among other investments was among the motivating
factors for proposing economic recession induced volatility in options pricing.
The application of the proposed Fast Fourier Transform algorithm in
handling multi-assets options was shown. A new result on options pricing
was achieved and capable of yielding efficient option prices during and out of
recession. Numerical results were presented on assets in 3-dimensions as an
illustration taking Black Scholes prices as a bench mark for method effectiveness
comparison. The key findings of this research paper among other crucial
contributions could be seen in computational procedure of options valuation
in multi-dimensions and uncertainties in options payoffs under the exposure
of economic recession.