The Pricing of Asian Options in Uncertain Volatility Model

Yulian Fan and Huadong Zhang

Mathematical Problems in Engineering, 2014, vol. 2014, 1-16

Abstract:

This paper studies the pricing of Asian options when the volatility of the underlying asset is uncertain. We use the nonlinear Feynman-Kac formula in the G-expectation theory to get the two-dimensional nonlinear PDEs. For the arithmetic average fixed strike Asian options, the nonlinear PDEs can be transferred to linear PDEs. For the arithmetic average floating strike Asian options, we use a dimension reduction technique to transfer the two-dimensional nonlinear PDEs to one-dimensional nonlinear PDEs. Then we introduce the applicable numerical computation methods for these two classes of PDEs and analyze the performance of the numerical algorithms.

Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:hin:jnlmpe:786391

DOI: 10.1155/2014/786391

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