Pricing discretely monitored Asian options under Levy processes

Gianluca Fusai and Attilio Meucci

Journal of Banking & Finance, 2008, vol. 32, issue 10, 2076-2088

Abstract: We present methodologies to price discretely monitored Asian options when the underlying evolves according to a generic Levy process. For geometric Asian options we provide closed-form solutions in terms of the Fourier transform and we study in particular these formulas in the Levy-stable case. For arithmetic Asian options we solve the valuation problem by recursive integration and derive a recursive theoretical formula for the moments to check the accuracy of the results. We compare the implementation of our method to Monte Carlo simulation implemented with control variates and using different parametric Levy processes. We also discuss model risk issues.

Keywords: Asian; options; Discrete; monitoring; Quadrature; Levy; processes; Stable; processes; Model; risk (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (42)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:32:y:2008:i:10:p:2076-2088

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