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Article: Pricing continuously sampled Asian options with perturbation method

TitlePricing continuously sampled Asian options with perturbation method
Authors
Issue Date2003
PublisherJohn Wiley & Sons, Inc. The Journal's web site is located at http://www.interscience.wiley.com/jpages/0270-7314/
Citation
Journal Of Futures Markets, 2003, v. 23 n. 6, p. 535-560 How to Cite?
AbstractThis article explores the price of continuously sampled Asian options. For geometric Asian options, we present pricing formulas for both backward-starting and forward-starting cases. For arithmetic Asian options, we demonstrate that the governing partial differential equation (PDE) cannot be transformed into a heat equation with constant coefficients; therefore, these options do not have a closed-form solution of the Black-Scholes type, that is, the solution is not given in terms of the cumulative normal distribution function. We then solve the PDE with a perturbation method and obtain an analytical solution in a series form. Numerical results show that as compared with Zhang's (2001) highly accurate numerical results, the series converges very quickly and gives a good approximate value that is more accurate than any other approximate method in the literature, at least for the options tested in this article. Graphical results determine that the solution converges globally very quickly especially near the origin, which is the area in which most of the traded Asian options fall. © 2003 Wiley Periodicals, Inc.
Persistent Identifierhttp://hdl.handle.net/10722/177700
ISSN
2015 Impact Factor: 0.698
2015 SCImago Journal Rankings: 0.520
ISI Accession Number ID
References

 

DC FieldValueLanguage
dc.contributor.authorZhang, JEen_US
dc.date.accessioned2012-12-19T09:39:37Z-
dc.date.available2012-12-19T09:39:37Z-
dc.date.issued2003en_US
dc.identifier.citationJournal Of Futures Markets, 2003, v. 23 n. 6, p. 535-560en_US
dc.identifier.issn0270-7314en_US
dc.identifier.urihttp://hdl.handle.net/10722/177700-
dc.description.abstractThis article explores the price of continuously sampled Asian options. For geometric Asian options, we present pricing formulas for both backward-starting and forward-starting cases. For arithmetic Asian options, we demonstrate that the governing partial differential equation (PDE) cannot be transformed into a heat equation with constant coefficients; therefore, these options do not have a closed-form solution of the Black-Scholes type, that is, the solution is not given in terms of the cumulative normal distribution function. We then solve the PDE with a perturbation method and obtain an analytical solution in a series form. Numerical results show that as compared with Zhang's (2001) highly accurate numerical results, the series converges very quickly and gives a good approximate value that is more accurate than any other approximate method in the literature, at least for the options tested in this article. Graphical results determine that the solution converges globally very quickly especially near the origin, which is the area in which most of the traded Asian options fall. © 2003 Wiley Periodicals, Inc.en_US
dc.languageengen_US
dc.publisherJohn Wiley & Sons, Inc. The Journal's web site is located at http://www.interscience.wiley.com/jpages/0270-7314/en_US
dc.relation.ispartofJournal of Futures Marketsen_US
dc.titlePricing continuously sampled Asian options with perturbation methoden_US
dc.typeArticleen_US
dc.identifier.emailZhang, JE: jinzhang@hku.hken_US
dc.identifier.authorityZhang, JE=rp01125en_US
dc.description.naturelink_to_subscribed_fulltexten_US
dc.identifier.doi10.1002/fut.10073en_US
dc.identifier.scopuseid_2-s2.0-0037410450en_US
dc.relation.referenceshttp://www.scopus.com/mlt/select.url?eid=2-s2.0-0037410450&selection=ref&src=s&origin=recordpageen_US
dc.identifier.volume23en_US
dc.identifier.issue6en_US
dc.identifier.spage535en_US
dc.identifier.epage560en_US
dc.identifier.isiWOS:000182375800002-
dc.publisher.placeUnited Statesen_US
dc.identifier.scopusauthoridZhang, JE=7601346659en_US

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