Title
Path integral approach to Asian options in the Black-Scholes model Path integral approach to Asian options in the Black-Scholes model
Author
Faculty/Department
Faculty of Sciences. Physics
Publication type
article
Publication
Amsterdam ,
Subject
Physics
Source (journal)
Physica: A: theoretical and statistical physics. - Amsterdam
Volume/pages
389(2010) :4 , p. 780-788
ISSN
0378-4371
ISI
000273694300015
Carrier
E
Target language
English (eng)
Full text (Publishers DOI)
Affiliation
University of Antwerp
Abstract
We derive a closed-form solution for the price of an average strike as well as an average price geometric Asian option, by making use of the path integral formulation. Our results are compared to a numerical Monte Carlo simulation. We also develop a pricing formula for an Asian option with a barrier on a control process, combining the method of images with a partitioning of the set of paths according to the average along the path. This formula is exact when the correlation is zero, and is approximate when the correlation increases.
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