Arithmetic average options in the hyperbolic model

Larcher Gerhard, Predota Martin and Tichy Robert F.
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Larcher Gerhard: Department of Financial Mathematics, Johannes Kepler University, Linz, Altenbergerstr. 69, 4040 Linz, Austria.
Predota Martin: Department of Mathematics, A Graz University of Technology, Steyrergasse 30, 8010 Graz, Austria. email: predota@finanz.math.TUGraz.at
Tichy Robert F.: Department of Mathematics, A Graz University of Technology, Steyrergasse 30, 8010 Graz, Austria. email: predota@finanz.math.TUGraz.at

Monte Carlo Methods and Applications, 2003, vol. 9, issue 3, 227-239

Abstract: In this paper, we present a strategy for pricing discrete Asian options, i.e. for options whose payoff depends on the average price of the underlying asset where the average is extended over a fixed period up to the maturity date. Following a recent development in Mathematical Finance (cf. Eberlein, E., Keller, U. and Prause, K. (1998) New insights into smile, mispricing and value at risk: the hyperbolic model, Journal of Business, 71, 371–405), we assume that the log returns of the asset are hyperbolically distributed.

Keywords: Asian option; hyperbolic distribution; Quasi-Monte Carlo methods; Esscher transform (search for similar items in EconPapers)
Date: 2003
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DOI: 10.1515/156939603322728996

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