Asian Option Pricing with Orthogonal Polynomials

Sander Willems
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Sander Willems: Ecole Polytechnique Fédérale de Lausanne and Swiss Finance Institute

No 18-09, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: In this paper we derive a series expansion for the price of a continuously sampled arithmetic Asian option in the Black-Scholes setting. The expansion is based on polynomials that are orthogonal with respect to the log-normal distribution. All terms in the series are fully explicit and no numerical integration nor any special functions are involved. We provide sufficient conditions to guarantee convergence of the series. We address the moment indeterminacy of the log-normal distribution and numerically investigate its impact on the asymptotic behavior of the series.

Keywords: Asian Option; Option Pricing; Orthogonal Polynomials (search for similar items in EconPapers)
JEL-codes: C32 G13 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2018-02, Revised 2018-02
New Economics Papers: this item is included in nep-sea
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1809

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