An effective hybrid variance reduction method for pricing the Asian options and its variants

King-Jeng Lu, Chiung-Ju Liang, Ming-Hua Hsieh and Yi-Hsi Lee

The North American Journal of Economics and Finance, 2020, vol. 51, issue C

Abstract: In this paper, we propose a variance reduction method that combines importance sampling and control variates to price European Arithmetic Asian options and its variants (i.e., Asian options plus knock-in or knock-out options) under the Black-Scholes model. The numerical results show that the proposed methods are especially efficient under the following scenarios: in the money, low volatility, more sampling dates, and higher barrier thresholds.

Keywords: Asian options; Barrier options; Variance reduction; Importance sampling; Control variates (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:51:y:2020:i:c:s1062940818305825

DOI: 10.1016/j.najef.2019.04.004

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