A New Control Variate Estimator for an Asian Option

Kenji Kamizono, Takeaki Kariya, Regina Liu and Teruo Nakatsuma

Asia-Pacific Financial Markets, 2004, vol. 11, issue 2, 143-160

Abstract: There exist several estimators for valuing the Asian option on the arithmetic mean. Among all variance reduction estimators, the one with the control variate derived from the geometric mean has been shown by Boyle et al. (1997) to perform best so far. In this paper, a new improved control variate estimator for this type of Asian option is proposed and investigated. Simulation results confirm that it does perform better than the control variate derived from the geometric mean. The improvement becomes more significant as the volatility increases and/or as the time to expiration lengthens. Copyright Springer Science+Business Media, Inc. 2004

Keywords: control variate estimator; variance reduction technique; Monte-Carlo simulation option pricing (search for similar items in EconPapers)
Date: 2004
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DOI: 10.1007/s10690-006-9007-8

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