Sensitivity Analysis of the Early Exercise Boundary for American Style of Asian Options
International Journal of Numerical Analysis and Modeling, Series B Computing and Information, Vol. 1, No. 1, pp. 1-18, 2011
16 Pages Posted: 17 Jan 2011
Date Written: January 16, 2011
Abstract
In this paper we analyze American style of floating strike Asian call options belonging to the class of financial derivatives whose payoff diagram depends not only on the underlying asset price but also on the path average of underlying asset prices over some predetermined time interval.
The mathematical model for the option price leads to a free boundary problem for a parabolic partial differential equation. Applying fixed domain transformation and transformation of variables we develop an efficient numerical algorithm based on a solution to a non-local parabolic partial differential equation for the transformed variable representing the synthesized portfolio. For various types of averaging methods we investigate the dependence of the early exercise boundary on model parameters.
Keywords: Option Pricing, American-Style Asian Options, Early Exercise Boundary, Fixed Domain Transformation
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
By Tomas Bokes and Daniel Sevcovic