Pricing discretely monitored Asian options under Lévy processes |
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Authors: | Gianluca Fusai Attilio Meucci |
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Affiliation: | 1. Dipartimento SEMEQ, Università degli Studi del Piemonte Orientale, Via Perrone 18, 28100 Novara, Italy;2. Associate Research Fellow, Financial Options Research Centre, Warwick Business School, UK;3. Lehman Brothers, Incorporation |
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Abstract: | We present methodologies to price discretely monitored Asian options when the underlying evolves according to a generic Lévy process. For geometric Asian options we provide closed-form solutions in terms of the Fourier transform and we study in particular these formulas in the Lévy-stable case. For arithmetic Asian options we solve the valuation problem by recursive integration and derive a recursive theoretical formula for the moments to check the accuracy of the results. We compare the implementation of our method to Monte Carlo simulation implemented with control variates and using different parametric Lévy processes. We also discuss model risk issues. |
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Keywords: | G13 C63 |
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