Pricing Asian options with stochastic convenience yield and jumps

Christian-Oliver Ewald, Yuexiang Wu and Aihua Zhang

Quantitative Finance, 2023, vol. 23, issue 4, 677-692

Abstract: We price Asian options on commodity futures contracts in the presence of stochastic convenience yield, stochastic interest rates and jumps in the commodity spot price. In the case of no jumps, we obtain a closed-form solution for a geometric average Asian option. This analytic result enables us to employ this option as a suitable control variate when pricing the corresponding arithmetic average Asian option. Discussion of further applications and comparative statics are presented. To cover the case with jumps, we condition on the jump times first and then average over the sequences of jump times.

Date: 2023
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DOI: 10.1080/14697688.2022.2160799

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