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Title: Fast fourier transform for option pricing: improved mathematical modeling and design of an efficient parallel algorithm
Authors: Barua, Sajib
Supervisor: Dr. Ruppa K. Thulasiram (Computer Science)
Examining Committee: Dr. Peter Graham (Computer Science), Dr. Abba Gumel (Mathematics)
Graduation Date: October 2004
Keywords: Option Pricing
Parallel Fast Fourier Transform Algorithm
Financial Derivatives
Data Locality
Issue Date: 19-May-2005
Abstract: The Fast Fourier Transform (FFT) has been used in many scientific and engineering applications. The use of FFT for financial derivatives has been gaining momentum in the recent past. In this thesis, i) we have improved a recently proposed model of FFT for pricing financial derivatives to help design an efficient parallel algorithm. The improved mathematical model put forth in our research bridges a gap between quantitative approaches for the option pricing problem and practical implementation of such approaches on modern computer architectures. The thesis goes further by proving that the improved model of fast Fourier transform for option pricing produces accurate option values. ii) We have developed a parallel algorithm for the FFT using the classical Cooley-Tukey algorithm and improved this algorithm by introducing a data swapping technique that brings data closer to the respective processors and hence reduces the communication overhead to a large extent leading to better performance of the parallel algorithm. We have tested the new algorithm on a 20 node SunFire 6800 high performance computing system and compared the new algorithm with the traditional Cooley-Tukey algorithm. Option values are calculated for various strike prices with a proper selection of strike-price spacing to ensure fine-grid integration for FFT computation as well as to maximize the number of strikes lying in the desired region of the stock price. Compared to the traditional Cooley-Tukey algorithm, the current algorithm with data swapping performs better by more than 15% for large data sizes. In the rapidly changing market place, these improvements could mean a lot for an investor or financial institution because obtaining faster results offers a competitive advantages.
Type: Electronic Thesis or Dissertation
Appears in Collection(s):FGS - Electronic Theses & Dissertations (Public)

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