Efficient pricing of discrete arithmetic Asian options under mean reversion and jumps based on Fourier-cosine expansions

JOURNAL OF COMPUTATIONAL AND APPLIED MATHEMATICS

卷:311

Article

Huang, Chun-Sung^1,5  O'Hara, John G.^2,4  Mataramvura, Sure^3,5 

[1] Univ Cape Town, Dept Finance & Tax, ZA-7701 Rondebosch, South Africa

[2] Univ Essex, Ctr Computat Finance & Econ Agents, Colchester CO4 3SQ, Essex, England

[3] Univ Cape Town, Div Actuarial Sci, ZA-7701 Rondebosch, South Africa

[4] Univ KwaZulu Natal, Math Sci, Westville Campus, ZA-3001 Durban, South Africa

[5] Univ Cape Town, African Collaborat Quantitat Finance & Risk Res A, ZA-7701 Rondebosch, South Africa

关键词: Arithmetic Asian options;    Fourier-cosine expansions;    Fast Fourier transform;    Mean reverting process;    Jump-diffusion;   

DOI  :  10.1016/j.cam.2016.07.019

来源: Elsevier

【 摘 要 】

We propose an efficient pricing method for arithmetic Asian options based on Fourier-cosine expansions. In particular, we allow for mean reversion and jumps in the underlying price dynamics. There is an extensive body of empirical evidence in the current literature that points to the existence and prominence of such anomalies in the prices of certain asset classes, such as commodities. Our efficient pricing method is derived for the discretely monitored versions of the European-style arithmetic Asian options. The analytical solutions obtained from our Fourier-cosine expansions are compared to the benchmark fast Fourier transform based pricing for the examination of its accuracy and computational efficiency. (C) 2016 Elsevier B.V. All rights reserved.

【 授权许可】

Free