Small dimension PDE for discrete Asian options

Eric Benhamou () and Alexandre Duguet

Journal of Economic Dynamics and Control, 2003, vol. 27, issue 11, 2095-2114

Abstract: This paper presents an efficient method for pricing discrete Asian options in presence of smile and non-proportional dividends. Using an homogeneity property, we show how to reduce an n0 dimensional problem to a one- or two-dimensional one. We examine different numerical specifications of our dimension reduced PDE using a Crank–Nicholson method (interpolation method, grid boundaries, time and space steps) as well as the extension to the case of non-proportional discrete dividends, using a jump condition. We benchmark our results with Quasi Monte-Carlo simulation and a multi-dimensional PDE

Keywords: Discrete Asian Option; Homogeneity; PDEs; Crank–Nicholson; Non-proportional dividends; Smile (search for similar items in EconPapers)
JEL-codes: G12 G13 (search for similar items in EconPapers)
Date: 2003
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:27:y:2003:i:11:p:2095-2114

DOI: 10.1016/S0165-1889(02)00117-3

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