Analytical pricing of discrete arithmetic Asian options with mean reversion and jumps

Shing Fung Chung and Hoi Ying Wong

Journal of Banking & Finance, 2014, vol. 44, issue C, 130-140

Abstract: Empirical evidence indicates that commodity prices are mean reverting and exhibit jumps. As some commodity option payoffs involve the arithmetic average of historical commodity prices, we derive an analytical solution to arithmetic Asian options under a mean reverting jump diffusion process. The analytical solution is implemented with the fast Fourier transform based on the joint characteristic function of the terminal asset price and the realized average value. We also examine the accuracy and computational efficiency of the proposed method through numerical studies.

Keywords: Asian options; Fourier transform; Mean reversion; Jump diffusion (search for similar items in EconPapers)
JEL-codes: G12 G13 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S037842661400137X
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:44:y:2014:i:c:p:130-140

DOI: 10.1016/j.jbankfin.2014.04.011

Access Statistics for this article

Journal of Banking & Finance is currently edited by Ike Mathur

More articles in Journal of Banking & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().