SENSITIVITIES OF ASIAN OPTIONS IN THE BLACK–SCHOLES MODEL

Dan Pirjol () and Lingjiong Zhu ()
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Dan Pirjol: J. P. Morgan, 277 Park Avenue, New York, NY-10172, USA
Lingjiong Zhu: Department of Mathematics, Florida State University, 1017 Academic Way, Tallahassee, FL-32306, USA

International Journal of Theoretical and Applied Finance (IJTAF), 2018, vol. 21, issue 01, 1-25

Abstract: We propose analytical approximations for the sensitivities (Greeks) of the Asian options in the Black–Scholes model, following from a small maturity/volatility approximation for the option prices which has the exact short maturity limit, obtained using large deviations theory. Numerical tests demonstrate good agreement of the proposed approximation with alternative numerical simulation results for cases of practical interest. We also study the qualitative properties of Asian Greeks, including new results for Rho, the sensitivity with respect to changes in the risk-free rate, and Psi, the sensitivity with respect to the dividend yield. In particular, we show that the Rho of a fixed-strike Asian option and the Psi of a floating-strike Asian option can change sign.

Keywords: Asian options; sensitivity analysis; Greeks; approximation (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (3)

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DOI: 10.1142/S0219024918500085

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