Title
Pricing bounds for discrete arithmetic Asian options under Lévy models Pricing bounds for discrete arithmetic Asian options under Lévy models
Author
Faculty/Department
Faculty of Applied Economics
Faculty of Sciences. Physics
Publication type
article
Publication
Amsterdam ,
Subject
Physics
Source (journal)
Physica: A: theoretical and statistical physics. - Amsterdam
Volume/pages
389(2010) :22 , p. 5193-5207
ISSN
0378-4371
ISI
000283405300009
Carrier
E
Target language
English (eng)
Full text (Publishers DOI)
Affiliation
University of Antwerp
Abstract
Analytical bounds for Asian options are almost exclusively available in the BlackScholes framework. In this paper we derive bounds for the price of a discretely monitored arithmetic Asian option when the underlying asset follows an arbitrary Lévy process. Explicit formulas are given for Kous model, Mertons model, the normal inverse Gaussian model, the CGMY model and the variance gamma model. The results are compared with the comonotonic upper bound, existing numerical results, Monte carlo simulations and in the case of the variance gamma model with an existing lower bound. The method outlined here provides lower and upper bounds that are quick to evaluate, and more accurate than existing bounds.
E-info
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