An imprecise pricing model for Asian options based on Nonparametric predictive inference

Ting He

Pacific-Basin Finance Journal, 2023, vol. 77, issue C

Abstract: This paper concerns the price procedure for Asian options under circumstances where limited information is available in the market. We present a novel approach to price the Asian option from the aspect of imprecise probability. Nonparametric Predictive Inference (NPI) is applied to infer the average value of the future underlying asset price, offering the prediction with few assumptions while reflecting more uncertainty with the presentation of the interval. A rational pairwise trading criterion is also proposed in this paper for the Asian options comparison as a risk measure. The NPI method for the Asian option is illustrated in several examples using simulation techniques or empirical data from the oil market. Overall, our findings reveal that the imprecise pricing method for Asian options based on NPI is an excellent approach to managing the problem of insufficient market information.

Keywords: Asian option; Imprecise probability; Nonparametric predictive inference; Uncertainty; Derivatives pricing (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0927538X23000070
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:pacfin:v:77:y:2023:i:c:s0927538x23000070

DOI: 10.1016/j.pacfin.2023.101941

Access Statistics for this article

Pacific-Basin Finance Journal is currently edited by K. Chan and S. Ghon Rhee

More articles in Pacific-Basin Finance Journal from Elsevier
Bibliographic data for series maintained by Catherine Liu ().