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Asymptotics for the Discrete-Time Average of the Geometric Brownian Motion and Asian Options

Dan Pirjol and Lingjiong Zhu

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Abstract: The time average of geometric Brownian motion plays a crucial role in the pricing of Asian options in mathematical finance. In this paper we consider the asymptotics of the discrete-time average of a geometric Brownian motion sampled on uniformly spaced times in the limit of a very large number of averaging time steps. We derive almost sure limit, fluctuations, large deviations, and also the asymptotics of the moment generating function of the average. Based on these results, we derive the asymptotics for the price of Asian options with discrete-time averaging in the Black-Scholes model, with both fixed and floating strike.

New Economics Papers: this item is included in nep-sea
Date: 2017-06
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Published in Advances in Applied Probability, Volume 49, Issue 2, 446-480 (2017)

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