Pricing and Hedging of Asian Options: Quasi-Explicit Solutions via Malliavin Calculus

Zhaojun Yang, Christian-Oliver Ewald and Olaf Menkens

No 910, CRIEFF Discussion Papers from Centre for Research into Industry, Enterprise, Finance and the Firm

Abstract: We use Malliavin calculus and the Clark-Ocone formula to derive the hedging strategy of an arithmetic Asian Call option in general terms. Furthermore we derive an expression for the density of the integral over time of a geometric Brownian motion, which allows us to express hedging strategy and price of the Asian option as an analytic, that is closed form, expression. Numerical computations which are based on this expression are provided.

Keywords: Asian options; option pricing; hedging; Malliavin calculus. (search for similar items in EconPapers)
JEL-codes: G12 G13 (search for similar items in EconPapers)
Date: 2009-09
New Economics Papers: this item is included in nep-rmg and nep-sea
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Journal Article: Pricing and hedging of Asian options: quasi-explicit solutions via Malliavin calculus (2011)
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