Research output: Working paper
Research output: Working paper
}
TY - UNPB
T1 - Efficient quadratic approximation of floating strike Asian option values
AU - Chung, S L
AU - Shackleton, M B
AU - Wojakowski, R M
PY - 2000
Y1 - 2000
N2 - Asian option pricing is difficult because the underlying average does not have a well known distribution. For large averaging times, the distribution and option price do have known limiting forms but perversely, Asian options are more difficult to price the shorter and less volatile the situation. Moreover floating strike options are more difficult to price than fixed strike because a joint distribution is required in the former. In this paper we provide an efficient method for floating strike options that works well for the low and medium volatility as well a finite maturity cases, because the method is based on the first few terms only of a series expansion of the underlying variable in volatility. As well as complementing other numerical techniques our method is fast and efficient compared to the Monte Carlo benchmark method adopted.
AB - Asian option pricing is difficult because the underlying average does not have a well known distribution. For large averaging times, the distribution and option price do have known limiting forms but perversely, Asian options are more difficult to price the shorter and less volatile the situation. Moreover floating strike options are more difficult to price than fixed strike because a joint distribution is required in the former. In this paper we provide an efficient method for floating strike options that works well for the low and medium volatility as well a finite maturity cases, because the method is based on the first few terms only of a series expansion of the underlying variable in volatility. As well as complementing other numerical techniques our method is fast and efficient compared to the Monte Carlo benchmark method adopted.
KW - Floating strike
KW - Asian option pricing
KW - Arithmetic average
KW - Distribution
KW - Series expansion
KW - Volatility
M3 - Working paper
T3 - Accounting and Finance Working Paper Series
BT - Efficient quadratic approximation of floating strike Asian option values
PB - The Department of Accounting and Finance
CY - Lancaster University
ER -