Sep
14

## Monte Carlo arithmetic average price Asian option

Today is the Chinese traditional Mid-Autumn Festival, also known as the Moon Festival, which is used to celebrate the end of the summer harvesting season, first of all, wish you happy everyday and achieve what you want. A pic of Mooncake

Asian options are options where the payoff depends on the average price of the underlying asset during at least some part of the life of the option. The payoff from an average price call is max(Save - K, 0) where Save is the average value of the underlying asset calculated over a predetermined averaging period. Average price options are less expensive than regular options.

Besides anti-thetic sampling method, control variate is another popular way for variance reduction, given the condition we can find a good proxy product, whose pricing formula is easy to get, in our case, geometric average asian option is used as control variate for arithemetic average asian option, here is a M file demonstrating Monte Carlo simulation on an arithmetic average price Asian option using a geometric average price Asian as control variate.

http://personal.strath.ac.uk/d.j.higham/ch22.m.

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Asian options are options where the payoff depends on the average price of the underlying asset during at least some part of the life of the option. The payoff from an average price call is max(Save - K, 0) where Save is the average value of the underlying asset calculated over a predetermined averaging period. Average price options are less expensive than regular options.

Besides anti-thetic sampling method, control variate is another popular way for variance reduction, given the condition we can find a good proxy product, whose pricing formula is easy to get, in our case, geometric average asian option is used as control variate for arithemetic average asian option, here is a M file demonstrating Monte Carlo simulation on an arithmetic average price Asian option using a geometric average price Asian as control variate.

http://personal.strath.ac.uk/d.j.higham/ch22.m.

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2010/03/31 21:15 [Add/Edit reply] [Clear reply] [Del comment] [Block]

The link to the m file does not exist.

abiao

2010/03/31 22:29 [Add/Edit reply] [Clear reply] [Del comment] [Block]

thanks for pointing out, I have updated the link.

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