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A New Control Variate Estimator for an Asian Option |
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| Authors: | Kenji Kamizono Takeaki Kariya Regina Y. Liu Teruo Nakatsuma |
| Affiliation: | (1) Faculty of Economics, Nagasaki University, 4-2-1 Katafuchi, Nagasaki-shi, Nagasaki 850-8506, Japan;(2) Graduate School of Global Business, Meiji University, 1-1 Kanda-Surugadai, Chiyoda-ku, Tokyo 101-8301, Japan;(3) Department of Statistics, Hill Center, Rutgers University, Piscataway, NJ, 08855, USA;(4) Faculty of Economics, Keio University, 2-15-45 Mita, Minato-ku, Tokyo 108-8345, Japan |
| Abstract: | There exist several estimators for valuing the Asian option on the arithmetic mean. Among all variance reduction estimators, the one with the control variate derived from the geometric mean has been shown by Boyle et al. (1997) to perform best so far. In this paper, a new improved control variate estimator for this type of Asian option is proposed and investigated. Simulation results confirm that it does perform better than the control variate derived from the geometric mean. The improvement becomes more significant as the volatility increases and/or as the time to expiration lengthens. |
| Keywords: | control variate estimator variance reduction technique Monte-Carlo simulation option pricing |
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