In FFT, we define the range for log of strikes as km=+(m1)k=+(m1), form = 1, . .
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2 . This choice for β would cause at-the-money strike to fall in the middle of our range of strikes where S0 is today spot. For this choice of β, if we are interested in finding the premium for k = log(K) we would typically interpolate. (a) If we are interested in finding the premium for a specific strike, say k0 = log(K0)without any interpolation, what β would we choose? Find the index for this β. (b) What β would choose such that the first entry coincides to the premium for k0?
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Related Book For
An Introduction to the Mathematics of Financial Derivatives
ISBN: 978-0123846822
3rd edition
Authors: Ali Hirsa, Salih N. Neftci
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