Path integral approach to Asian options in the Black–Scholes model

J.P.A. Devreese, D. Lemmens and J. Tempere

Physica A: Statistical Mechanics and its Applications, 2010, vol. 389, issue 4, 780-788

Abstract: We derive a closed-form solution for the price of an average strike as well as an average price geometric Asian option, by making use of the path integral formulation. Our results are compared to a numerical Monte Carlo simulation. We also develop a pricing formula for an Asian option with a barrier on a control process, combining the method of images with a partitioning of the set of paths according to the average along the path. This formula is exact when the correlation is zero, and is approximate when the correlation increases.

Keywords: Econophysics; Path integrals; Asian options (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (14)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:389:y:2010:i:4:p:780-788

DOI: 10.1016/j.physa.2009.10.020

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