Analytical pricing of geometric Asian power options on an underlying driven by a mixed fractional Brownian motion

Wei-Guo Zhang, Zhe Li and Yong-Jun Liu

Physica A: Statistical Mechanics and its Applications, 2018, vol. 490, issue C, 402-418

Abstract: In this paper, we study the pricing problem of the continuously monitored fixed and floating strike geometric Asian power options in a mixed fractional Brownian motion environment. First, we derive both closed-form solutions and mixed fractional partial differential equations for fixed and floating strike geometric Asian power options based on delta-hedging strategy and partial differential equation method. Second, we present the lower and upper bounds of the prices of fixed and floating strike geometric Asian power options under the assumption that both risk-free interest rate and volatility are interval numbers. Finally, numerical studies are performed to illustrate the performance of our proposed pricing model.

Keywords: Asian power option; Mixed fractional Brownian motion; Partial differential equation; Option pricing; Interval numbers (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:490:y:2018:i:c:p:402-418

DOI: 10.1016/j.physa.2017.08.070

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