 Asian and Australian options: A common perspectiveChristian-Oliver Ewald, Olaf Menkens and Sai Hung Marten Ting Journal of Economic Dynamics and Control, 2013, vol. 37, issue 5, 1001-1018 Abstract: We show that Australian options are equivalent to fixed or floating strike Asian options and consequently that by studying Asian options from the Australian perspective and vice versa, much can be gained. One specific application of this “Australian approach” leads to a natural dimension reduction for the pricing PDE of Asian options, with or without stochastic volatility, featuring time independent coefficients. Another application lies in the improvement of Monte Carlo schemes, where the “Australian approach” results in a path-independent method. We also show how the Milevsky and Posner (1998) result on the reciprocal Γ-approximation for Asian options can be quickly obtained by using the connection to Australian options. Further, we present an analytical (exact) pricing formula for Australian options and adapt a result of Carr et al. (2008) to show that the price of an Australian call option is increasing in the volatility and by doing this answering a standing question by Moreno and Navas (2008). Keywords: Asset pricing; Derivatives; Asian options; Quanto options; Dollar cost averaging (DCA); Numerical methods (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:37:y:2013:i:5:p:1001-1018 DOI: 10.1016/j.jedc.2013.01.006 Access Statistics for this article Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok More articles in Journal of Economic Dynamics and Control from Elsevier |
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