• Comment: Note to author: please do not edit the AfC templates manually. DoubleGrazing (talk) 09:07, 18 August 2024 (UTC)
  • Comment: I could not understand any of this at all, and I wondered if perhaps it is just science that is beyond me. But given how long this has been awaiting review, I can only assume other reviewers felt the same. The lead at least needs to be able to describe what the topic is, or at least provide enough context, in a way that a layperson can understand. -- NotCharizard 🗨 11:23, 7 August 2024 (UTC)

The COS method is a numerical technique in computational finance to efficiently price European plain vanilla put options or call options provided the explicit form of the characteristic function of , where is the price of the underlying asset at time , is available. The method has been developed in 2008 by Fang Fang and Cornelis W. Oosterlee.[1]

The COS method requires two parameters: a truncation range and a number of terms. The truncation range can be found using Markov's inequality.[2] The number of terms can be found by integration by parts.[3] To price a call option it is numerically more stable to price a put option instead and use the put-call parity.[1]

See also

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References

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  1. ^ a b Fang, Fang; Oosterlee, Cornelis W. (2008). "A novel pricing method for European options based on Fourier-cosine series expansions". SIAM Journal on Scientific Computing. 31 (2): 826–848. doi:10.1137/080718061.
  2. ^ Junike, Gero; Pankrashkin, Konstantin (2022). "Precise option pricing by the COS method–How to choose the truncation range" (PDF). Applied Mathematics and Computation. 451 (126935): 1–14. doi:10.1016/j.amc.2022.126935.
  3. ^ Junike, Gero (2024). "On the number of terms in the COS method for European option pricing" (PDF). Numerische Mathematik. 156 (2): 533–564. doi:10.1007/s00211-024-01402-1.