Stochastic Expansion for the Pricing of Asian and Basket Options

Fabien Le Floc'h

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Abstract: We present closed analytical approximations for the pricing of basket options, also applicable to Asian options with discrete averaging under the Black-Scholes model with time-dependent parameters. The formulae are obtained by using a stochastic Taylor expansion around a log-normal proxy model and are found to be highly accurate for Asian options in practice as well as for vanilla options with discrete dividends.

Date: 2024-02, Revised 2024-08
New Economics Papers: this item is included in nep-rmg and nep-sea
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