Pricing geometric Asian rainbow options under the mixed fractional Brownian motion

D. Ahmadian and L.V. Ballestra

Physica A: Statistical Mechanics and its Applications, 2020, vol. 555, issue C

Abstract: We deal with the pricing of geometric Asian rainbow options under the mixed fractional Brownian motion. Based on standard no arbitrage arguments, we obtain a partial differential problem in several independent variables, which we solve by employing suitable changes of variables and analytical results derived in Bos and Ware (2001) and Stulz (1982b). Numerical test-cases are presented in which the pricing formula obtained is applied to geometric Asian rainbow options on two and three underlying assets. Monte Carlo simulations are also performed which confirm the correctness of the proposed closed-form solution.

Keywords: Mixed fractional Brownian motion; Rainbow options; Asian option; Multi-asset option; Non-Markov process (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:555:y:2020:i:c:s0378437120301941

DOI: 10.1016/j.physa.2020.124458

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