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An adjusted binomial model for pricing Asian options |
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| Authors: | Massimo Costabile Ivar Massabó Emilio Russo |
| Affiliation: | (1) Dipartimento di Scienze Aziendali, Università della Calabria, Ponte Bucci cubo 3 C, Rende (CS), 87030, Italy;(2) Dipartimento di Matematica, Statistica, Informatica e Applicazioni–Università di Bergamo, Via dei Caniana 2, 24127 Bergamo, Italy |
| 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. |
| Keywords: | Asian options Binomial algorithms Discrete-time models |
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