Universal option valuation using quadrature methods

Ari D. Andricopoulos, Martin Widdicks, Peter W. Duck, David P. Newton

Research output: Contribution to journalArticlepeer-review


This paper proposes and develops a novel, simple, widely applicable numerical approach for option pricing based on quadrature methods. Though in some ways similar to lattice or finite-difference schemes, it possesses exceptional accuracy and speed. Discretely monitored options are valued with only one timestep between observations, and nodes can be perfectly placed in relation to discontinuities. Convergence is improved greatly; in the extrapolated scheme, a doubling of points can reduce error by a factor of 256. Complex problems (e.g., fixed-strike lookback discrete barrier options) can be evaluated accurately and orders of magnitude faster than by existing methods.

Original languageEnglish (US)
Pages (from-to)447-471
Number of pages25
JournalJournal of Financial Economics
Issue number3
StatePublished - Feb 1 2003
Externally publishedYes


  • Barrier options
  • Lookback options
  • Numerical techniques
  • Option valuation
  • Quadrature

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics
  • Strategy and Management


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