Pricing Geometric Asian Options under the CEV Process |
| |
Authors: | Bin Peng |
| |
Affiliation: | 1. Postdoctural Research Station of Business and Administration , Xiamen University , Xiamen, Fujian, 361005, China Pengbin01@hotmail.com |
| |
Abstract: | Abstract This paper discusses the pricing of geometric Asian options when the underlying stock follows the constant elasticity of variance (CEV) process. We build a binomial tree method to estimate the CEV process and use it to price geometric Asian options. We find that the binomial tree method for the lognormal case can effectively solve the computational problems arising from the inherent complexities of geometric Asian options when the stock price follows the CEV process. We present numerical results to demonstrate the validity and the convergence of the approach for the different parameter values set in the CEV process. |
| |
Keywords: | Exotic options geometric Asian options binomial tree method CEV process |
|
|