The exposition of the quadrature (QUAD) method (Andricopoulos, Widdicks, Duck, and Newton, 2003. Universal option valuation using quadrature methods. Journal of Financial Economics 67, 447–471 (see also Corrigendum, Journal of Financial Economics 73, 603 (2004)) is significantly extended to cover notably more complex and difficult problems in option valuations involving one or more underlyings. Trials comparing several techniques in the literature, adapted from standard lattice, grid and Monte Carlo methods to tackle particular types of problem, show that QUAD offers far greater flexibility, superior convergence, and hence, increased accuracy and considerably reduced computational times. The speed advantage of QUAD means that, even under the curse of dimensionality, it is not necessary to resort to Monte Carlo methods (certainly for options involving up to five underlying assets). Given the universality and flexibility of the method, it should be the method of choice for pricing options involving multiple underlying assets, in the presence of many features, such as early exercise or path dependency.

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.