The square-root process and Asian options

Angelos Dassios and Jayalaxshmi Nagaradjasarma

Quantitative Finance, 2006, vol. 6, issue 4, 337-347

Abstract: Although the square-root process has long been used as an alternative to the Black-Scholes geometric Brownian motion model for option valuation, the pricing of Asian options on this diffusion model has never been studied analytically. However, the additivity property of the square-root process makes it a very suitable model for the analysis of Asian options. In this paper, we develop explicit prices for digital and regular Asian options. We also obtain distributional results concerning the square-root process and its average over time, including analytic formulae for their joint density and moments. We also show that the distribution is actually determined by those moments.

Keywords: Quantitative Finance classification scheme; DER P&H, (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (14)

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DOI: 10.1080/14697680600724775

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