Quadrature methods allow for numerical computations of integrals. In quantitative finance, these methods directly evaluate conditional expected values representing derivative prices. This task can be achieved whenever the distribution of the underlying variable is available in closed form. The resulting method turns out to be very effective for low-dimensional problems.
Composite Newton-Cotes formulas, Gaussian quadrature rules and FFT inversion will be presented with VBA and Matlab examples:
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