We propose a model for pricing both European and American Asian options based on the arithmetic average of the underlying asset prices. Our approach relies on a binomial tree describing the underlying asset evolution. At each node of the tree we associate a set of representative averages chosen among all the effective averages realized at that node. Then, we use backward recursion and linear interpolation to compute the option price.

An adjusted binomial model for pricing Asian options

COSTABILE, Massimo;MASSABO', Ivar;RUSSO, EMILIO
2006

Abstract

We propose a model for pricing both European and American Asian options based on the arithmetic average of the underlying asset prices. Our approach relies on a binomial tree describing the underlying asset evolution. At each node of the tree we associate a set of representative averages chosen among all the effective averages realized at that node. Then, we use backward recursion and linear interpolation to compute the option price.
Asian options.; Discrete-time models.; Binomial algorithms.
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/20.500.11770/153309
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