An Accurate and Efficient Method for Pricing Asian Options
25 Pages Posted: 11 May 2003
Date Written: January 14, 2003
Abstract
In this paper we provide an accurate and efficient method for valuing Asian options that works well for the low and medium volatility as well as longer average time window. Numerical results show that our method significantly outperforms the other analytic approximation methods in the literature. The pricing errors in terms of mean square errors for calculating a bundle of Asian options are less than one percent. Our method is fast and efficient compared to the Monte Carlo benchmark method adopted as well.
Keywords: Analytic approximation Methods, Asian options, Monte Carlo
JEL Classification: G13
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