An RBF scheme for option pricing in exponential Levy models

We use Radial Basis Function (RBF) interpolation to price options in exponential Lévy models by numerically solving the fundamental pricing PIDE (Partial integro-differential equations). Our RBF scheme can handle arbitrary singularities of the Lévy measure in 0 without introducing further approximations, making it simpler to implement than competing methods. In numerical experiments using processes from the CGMY-KoBoL class, the scheme is found to be second order convergent in the number of interpolation points, including for processes of unbounded variation

A Novel Fourier Transform B-spline Method for Option Pricing

We present a new efficient and robust framework for European option pricing under continuous-time asset models from the family of exponential semimartingale processes. We introduce B-spline interpolation theory to derivative pricing to provide an accurate closed-form representation of the option price under an inverse Fourier transform. We compare our method with some state-of-the-art option pricing methods, and demonstrate that it is extremely fast and accurate. This suggests a wide range of applications, including the use of more realistic asset models in high frequency trading. Examples considered in the paper include option pricing under asset models, including stochastic volatility and jumps, computation of the Greeks, and the inverse problem of cross-sectional calibration