An Efficient Binomial Method for Pricing Asian Options

Kyoung-Sook Moon, Yunju Jeong and Hongjoong Kim ()
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Kyoung-Sook Moon: Department of Mathematical Finance Gachon University, Gyeonggi-Do, Korea
Yunju Jeong: Department of Mathematics Korea University, Seoul, Korea
Hongjoong Kim: Department of Mathematics, Korea University, Seoul, Korea

ECONOMIC COMPUTATION AND ECONOMIC CYBERNETICS STUDIES AND RESEARCH, 2016, vol. 50, issue 2, 151-164

Abstract: We construct an efficient tree method for pricing path-dependent Asian options. The standard tree method estimates option prices at each node of the tree, while the proposed method defines an interval about each node along the stock price axis and estimates the average option price over each interval. The proposed method can be used independently to construct a new tree method, or it can be combined with other existing tree methods to improve the accuracy. Numerical results show that the proposed schemes show superiority in accuracy to other tree methods when applied to discrete forward-starting Asian options and continuous European or American Asian options.

Keywords: binomial tree method; cell averaging; Asian options. (search for similar items in EconPapers)
JEL-codes: C02 C63 G13 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (1)

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