Keywords Asian option derivatives of option prices geometric Brownian motion time integral. A thorough understanding of risk is essential in options trading. Alternatively, you can generate sample data for the option payoff and perform statistical analysis of this data. Unlike the infinitesimal perturbation analysis, the likelihood ratio method is based on the probability density function of underlying price and the Greeks. The payoff at maturity of an average price European Asian option is: This is an open access article distributed under the Creative Commons Attribution License , which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
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Quantitative Finance > Computational Finance
It is very clear that our proposed method is better than the CRN method in the sense that it introduce much smaller standard error than the classic CRN method with the same other parameters. You can consider another asset, which also follows a geometric Brownian motion but with different parameters. This is because the volatility in the average value of an underlier tends to be lower than the volatility of the value of the underlier itself. Hedging is an insurance to minimize exposure to market movements on the value of a position or portfolio. Select Your Country Choose your country to get translated content where available and see local events and offers. By chain rule, we have.
Keywords Asian option derivatives of option prices geometric Brownian motion time integral. Let us first fix some parameters: When pricing becomes inefficient due to thinly traded markets low liquidity markets This type of option contract is attractive because it tends to cost less than regular American options. View at Google Scholar M. Also, in situations where the underlier is thinly traded or there is the potential for its price to be manipulated, an Asian option offers some protection. For a call option, when the option's strike price is below
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Asian option - Wikipedia
Overview of Asian Options Asian options are securities with payoffs that depend on the average value of an underlying asset over a specific period of time. Other methods include analytic method and finite difference approach. Asian options are securities with payoffs that depend on the average value of an underlying asset over a specific period of time. As stated in the paper, the results are consistent with the Monte Carlo simulation. Several exercise price-dependent upper bounds are derived. Under an Elsevier user license.
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