AN EFFICIENT VARIANCE REDUCTION-BASED SIMULATION ALGORITHM FOR PRICING ARITHMETIC ASIAN OPTIONS

Farshid Mehrdoust and Idin Noorani
Additional contact information
Farshid Mehrdoust: Department of Applied Mathematics, Faculty of Mathematical Sciences, University of Guilan, Rasht, Iran
Idin Noorani: Department of Applied Mathematics, Faculty of Mathematical Sciences, University of Guilan, Rasht, Iran

Annals of Financial Economics (AFE), 2020, vol. 15, issue 01, 1-17

Abstract: This paper proposes a new hybrid algorithm to price the arithmetic Asian options under the geometric Brownian motion (GBM). The proposed algorithm is based on the control variate technique, such that the control variable is a combination of the barrier arithmetic Asian option and the geometric Asian option, which each one will be estimated by the importance sampling and the control variate techniques, respectively. Besides, we drive a conditional expectation for the estimator that it can reduce variance of simulations. The merits of the proposed algorithm for pricing arithmetic Asian options are illustrated by several examples.

Keywords: Asian option; barrier option; variance reduction; quasi-Monte Carlo simulation (search for similar items in EconPapers)
Date: 2020
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S2010495220500013
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:afexxx:v:15:y:2020:i:01:n:s2010495220500013

Ordering information: This journal article can be ordered from

DOI: 10.1142/S2010495220500013

Access Statistics for this article

Annals of Financial Economics (AFE) is currently edited by Michael McAleer

More articles in Annals of Financial Economics (AFE) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().