Path integral pricing of outside barrier Asian options

Aurelien Cassagnes, Yu Chen and Hirotada Ohashi

Physica A: Statistical Mechanics and its Applications, 2014, vol. 394, issue C, 266-276

Abstract: Using the path-integral framework to cast the pricing problem of the outside barrier Asian option into a Wiener functional integral form, we show that, after the introduction of a law-equivalent process and transformation of the new system, the deviation from the Monte Carlo price is seen to be widely reduced. Bypassing the path-partitioning step, we show that our results behave nicely with respect to increasing correlation. After putting forward empirical evidence of this improvement, we extend the scope to a double knock-out outside barrier, and derive there an original formula. In the latter setting, we propose a simple scheme to reduce the relative error due to a nearby knock-out barrier.

Keywords: Asian option; Outside barrier option; Wiener integral (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:394:y:2014:i:c:p:266-276

DOI: 10.1016/j.physa.2013.09.067

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