Pricing and hedging of Asian options: quasi-explicit solutions via Malliavin calculus

Zhaojun Yang, Christian-Oliver Ewald and Olaf Menkens ()

Mathematical Methods of Operations Research, 2011, vol. 74, issue 1, 93-120

Abstract: We use Malliavin calculus and the Clark–Ocone formula to derive the hedging strategy of an arithmetic Asian Call option in general terms. Furthermore we derive an expression for the density of the integral over time of a geometric Brownian motion, which allows us to express hedging strategy and price of the Asian option as an analytic expression. Numerical computations which are based on this expression are provided. Copyright Springer-Verlag 2011

Keywords: Asian options; Option pricing; Hedging; Malliavin calculus; 91B28; 60H30; 65H05; 93E20; 90A09 (search for similar items in EconPapers)
Date: 2011
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DOI: 10.1007/s00186-011-0352-7

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