Skip to main content

Main menu

  • Home
  • Current Issue
  • Past Issues
  • Videos
  • Submit an article
  • More
    • About JOD
    • Editorial Board
    • Published Ahead of Print (PAP)
  • IPR Logo
  • About Us
  • Journals
  • Publish
  • Advertise
  • Videos
  • Webinars
  • More
    • Awards
    • Article Licensing
    • Academic Use
  • Follow IIJ on LinkedIn
  • Follow IIJ on Twitter

User menu

  • Sample our Content
  • Request a Demo
  • Log in

Search

  • ADVANCED SEARCH: Discover more content by journal, author or time frame
The Journal of Derivatives
  • IPR Logo
  • About Us
  • Journals
  • Publish
  • Advertise
  • Videos
  • Webinars
  • More
    • Awards
    • Article Licensing
    • Academic Use
  • Sample our Content
  • Request a Demo
  • Log in
The Journal of Derivatives

The Journal of Derivatives

ADVANCED SEARCH: Discover more content by journal, author or time frame

  • Home
  • Current Issue
  • Past Issues
  • Videos
  • Submit an article
  • More
    • About JOD
    • Editorial Board
    • Published Ahead of Print (PAP)
  • Follow IIJ on LinkedIn
  • Follow IIJ on Twitter

Widening the Range of Underlyings for Derivatives Pricing with QUAD by Using Finite Difference to Calculate Transition Densities—Demonstrated for the No-Arbitrage SABR Model

Haozhe Su and David P. Newton
The Journal of Derivatives Winter 2020, 28 (2) 22-46; DOI: https://doi.org/10.3905/jod.2020.1.105
Haozhe Su
is a lecturer in finance at Nottingham Business School, Nottingham Trent University, in Nottingham, UK
  • Find this author on Google Scholar
  • Find this author on PubMed
  • Search for this author on this site
David P. Newton
is a professor of finance at Bath School of Management, University of Bath, in Bath, UK
  • Find this author on Google Scholar
  • Find this author on PubMed
  • Search for this author on this site
  • Article
  • Info & Metrics
  • PDF (Subscribers Only)
Loading

Click to login and read the full article.

Don’t have access? Click here to request a demo 

Alternatively, Call a member of the team to discuss membership options
US and Overseas: +1 646-931-9045
UK: 0207 139 1600

Abstract

The QUAD method is a fast, flexible numerical pricing technique, widely applicable to many option types in its QUAD I and QUAD II versions where the underlying process has a closed-form density function or characteristic function. In its most advanced version, QUAD III, sacrificing only a little speed, it retains all the flexibility and applicability of earlier versions while covering an even greater range of underlying processes through use of approximations of the density functions. In this article, the authors show how cases without suitable approximations can be handled by using finite difference methods for (only) that part of the calculation. They illustrate with the no-arbitrage SABR model for the underlying.

TOPICS: Derivatives, options

Key Findings

  • • Option pricing techniques under the umbrella term QUAD are the fastest generally applicable and flexible numerical methods we have for derivatives pricing.

  • • Cases where there is no transition density function or characteristic function can be solved by using an approximation of the particular density function. However, in this article, an alternative approach is demonstrated, substituting finite difference calculations for the approximation.

  • • The no-arbitrage SABR model is used as an example, since it is of special interest to practitioners.

  • © 2020 Pageant Media Ltd
View Full Text

Don’t have access? Click here to request a demo

Alternatively, Call a member of the team to discuss membership options

US and Overseas: +1 646-931-9045

UK: 0207 139 1600

Log in using your username and password

Forgot your user name or password?
PreviousNext
Back to top

Explore our content to discover more relevant research

  • By topic
  • Across journals
  • From the experts
  • Monthly highlights
  • Special collections

In this issue

The Journal of Derivatives: 28 (2)
The Journal of Derivatives
Vol. 28, Issue 2
Winter 2020
  • Table of Contents
  • Index by author
  • Complete Issue (PDF)
Print
Download PDF
Article Alerts
Sign In to Email Alerts with your Email Address
Email Article

Thank you for your interest in spreading the word on The Journal of Derivatives.

NOTE: We only request your email address so that the person you are recommending the page to knows that you wanted them to see it, and that it is not junk mail. We do not capture any email address.

Enter multiple addresses on separate lines or separate them with commas.
Widening the Range of Underlyings for Derivatives Pricing with QUAD by Using Finite Difference to Calculate Transition Densities—Demonstrated for the No-Arbitrage SABR Model
(Your Name) has sent you a message from The Journal of Derivatives
(Your Name) thought you would like to see the The Journal of Derivatives web site.
CAPTCHA
This question is for testing whether or not you are a human visitor and to prevent automated spam submissions.
Citation Tools
Widening the Range of Underlyings for Derivatives Pricing with QUAD by Using Finite Difference to Calculate Transition Densities—Demonstrated for the No-Arbitrage SABR Model
Haozhe Su, David P. Newton
The Journal of Derivatives Nov 2020, 28 (2) 22-46; DOI: 10.3905/jod.2020.1.105

Citation Manager Formats

  • BibTeX
  • Bookends
  • EasyBib
  • EndNote (tagged)
  • EndNote 8 (xml)
  • Medlars
  • Mendeley
  • Papers
  • RefWorks Tagged
  • Ref Manager
  • RIS
  • Zotero
Save To My Folders
Share
Widening the Range of Underlyings for Derivatives Pricing with QUAD by Using Finite Difference to Calculate Transition Densities—Demonstrated for the No-Arbitrage SABR Model
Haozhe Su, David P. Newton
The Journal of Derivatives Nov 2020, 28 (2) 22-46; DOI: 10.3905/jod.2020.1.105
del.icio.us logo Digg logo Reddit logo Twitter logo CiteULike logo Facebook logo Google logo LinkedIn logo Mendeley logo
Tweet Widget Facebook Like LinkedIn logo

Jump to section

  • Article
    • Abstract
    • COMBINING FINITE DIFFERENCE METHODS WITH QUAD
    • SIMPSON’S RULE WITH THREE-POINT INITIAL CONDITION
    • CHANGE OF VARIABLE AND IMPLEMENTATION UNDER THE LAWSON–SWAYNE SCHEME
    • LAWSON–SWAYNE SCHEME WITH THE TRAPEZIUM RULE
    • RESULTS
    • CONCLUSION
    • ADDITIONAL READING
    • ENDNOTE
    • REFERENCES
  • Info & Metrics
  • PDF (Subscribers Only)
  • PDF (Subscribers Only)

Similar Articles

Cited By...

  • No citing articles found.
  • Google Scholar
LONDON
One London Wall, London, EC2Y 5EA
United Kingdom
+44 207 139 1600
 
NEW YORK
41 Madison Avenue, New York, NY 10010
USA
+1 646 931 9045
pm-research@pageantmedia.com
 

Stay Connected

  • Follow IIJ on LinkedIn
  • Follow IIJ on Twitter

MORE FROM PMR

  • Home
  • Awards
  • Investment Guides
  • Videos
  • About PMR

INFORMATION FOR

  • Academics
  • Agents
  • Authors
  • Content Usage Terms

GET INVOLVED

  • Advertise
  • Publish
  • Article Licensing
  • Contact Us
  • Subscribe Now
  • Log In
  • Update your profile
  • Give us your feedback

© 2021 Pageant Media Ltd | All Rights Reserved | ISSN: 1074-1240 | E-ISSN: 2168-8524

  • Site Map
  • Terms & Conditions
  • Privacy Policy
  • Cookies