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Abstract
This paper introduces an option pricing algorithm based on non-orthogonal series expansion methods. More precisely, Gabor frame decomposition is used to split the risk neutral option pricing formula into the sum of two inner products that can be evaluated efficiently by means of Parseval's theorem on complex Fourier series. The first inner product is hereby based on the stochastic process that is assumed to drive the underlying asset and the second one depends on the type of options contract to be priced. We consider European style plain vanilla call and put options as well as binary options.
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