Abstract
We present a new methodology based on maturity randomization to price discretely monitored arithmetic Asian options when the underlying asset evolves according to a generic Lévy process. Our randomization technique considers the option expiry to be a random variable distributed according to a geometric distribution of a parameter independent of the underlying process. This allows one to transform the pricing backward procedure into a set of independent integral equations. Numerical procedures for a fast and accurate solution of the pricing problem are provided.
Original language | English |
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Pages (from-to) | 383-403 |
Number of pages | 21 |
Journal | SIAM Journal on Financial Mathematics |
Volume | 2 |
Issue number | 1 |
DOIs | |
Publication status | Published - 2011 |
Keywords
- Asian option
- Discrete monitoring
- Fast Fourier transform
- Integral equation
- Lévy process
- Option pricing
- Quadrature formula