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Sep 28

Unified Asian Option Pricing

Posted by abiao at 13:36 | Code » Mathematica | Comments(0) | Reads(10602)
Asian options are securities with payoff which depends on the average of the underlying stock price over certain time interval. Since no general analytical solution for the price of the Asian option is known, a variety of techniques have been developed to analyze arithmetic average Asian options.

A simple and numerically stable 2-term partial differential equation characterizing the price of any type of arithmetically averaged Asian option is given. The approach includes both continuously and discretely sampled options and it is easily extended to handle continuous or discrete dividend yields.

The paper "Unified Asian Pricing",  Risk, Vol. 15, No. 6, 113-116 and its Mathematica nb file can be downloaded at http://www.stat.columbia.edu/~vecer/.

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