Prices and sensitivities of Asian options: A survey

Phelim Boyle and Alexander Potapchik

Insurance: Mathematics and Economics, 2008, vol. 42, issue 1, 189-211

Abstract: Asian options are hard to price both analytically and numerically. Even though they have been the focus of much attention in recent years, there is no single technique which is widely accepted to price Asian options for all choices of market parameters. For hedging purposes, the estimation of the price sensitivities is often as important as the evaluation of the prices themselves. This paper provides a survey of current methods for pricing Asian options and computing their sensitivities to the key input parameters. The methods discussed include: Monte Carlo simulation, the finite difference approach and various quasi analytical approaches and approximations. We discuss practical numerical issues that arise in implementing these methods. The paper compares the accuracy and efficiency of the different approaches and offers some general conclusions.

Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:42:y:2008:i:1:p:189-211

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