Pricing of Arithmetic Asian Options under Stochastic Volatility Dynamics: Overcoming the Risks of High-Frequency Trading

Mathematics

Chih-Chen Hsu¹  Chung-Gee Lin²  Tsung-Jung Kuo² 

[1] Department of Business Administration, Soochow University, Taipei 100006, Taiwan;Department of Financial Engineering and Actuarial Mathematics, Soochow University, Taipei 100006, Taiwan;

关键词: Asian option;    Taylor series expansion technique;    forward starting;    high-frequency trading;    stochastic volatility;   

DOI  :  10.3390/math8122251

来源: DOAJ

【 摘 要 】

This research extended the model developed by Hull and White by integrating Taylor-series expansion into the model for deriving approximate analytical solutions for stochastic volatility forward-starting Asian options. Numerical experiments were performed to compare the proposed model with the Monte Carlo model over numerous simulations and demonstrated that the developed model has a pricing accuracy greater than 99%. Furthermore, the computation time was approximately 10⁻⁵ s for each simulation. The model’s outstanding computational performance demonstrates its capability to address the challenges of high-frequency trading.

【 授权许可】

Unknown