PRICING ASIAN OPTIONS WITH CORRELATORS

Silvia Lavagnini
Additional contact information
Silvia Lavagnini: Department of Mathematics, University of Oslo, 0316 Blindern, Norway2Department of Economics, University of Verona, 37129 Verona, Italy

International Journal of Theoretical and Applied Finance (IJTAF), 2021, vol. 24, issue 08, 1-44

Abstract: We derive a series expansion by Hermite polynomials for the price of an arithmetic Asian option. This requires the computation of moments and correlators of the underlying asset price which for a polynomial jump–diffusion process are given analytically; hence, no numerical simulation is required to evaluate the series. This allows to derive analytical expressions for the option Greeks. The weight function defining the Hermite polynomials is a Gaussian density with scale b. We find that the rate of convergence of the series depends on b, for which we prove a lower bound to guarantee convergence. Numerical examples show that the series expansion is accurate but unstable for initial values of the underlying process far from zero, mainly due to rounding errors.

Keywords: Asian option; option pricing; Greeks; orthogonal polynomials; Hermite polynomials; polynomial jump–diffusion process; correlators (search for similar items in EconPapers)
Date: 2021
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S0219024921500412
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:ijtafx:v:24:y:2021:i:08:n:s0219024921500412

Ordering information: This journal article can be ordered from

DOI: 10.1142/S0219024921500412

Access Statistics for this article

International Journal of Theoretical and Applied Finance (IJTAF) is currently edited by L P Hughston

More articles in International Journal of Theoretical and Applied Finance (IJTAF) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().