Closed-Form Expansions of Discretely Monitored Asian Options in Diffusion Models

• 成果类型: Article
• 署名作者: Cai, Ning; Li, Chenxu; Shi, Chao
• 署名单位: Hong Kong University of Science & Technology; Peking University
• 刊物名称: MATHEMATICS OF OPERATIONS RESEARCH
• ISSN/ISSBN: 0364-765X
• DOI: 10.1287/moor.2013.0619
• 发表日期: 2014
• 页码: 789-822
• 关键词: Continuous-time models; valuation; jump

摘要

In this paper we propose a closed-form asymptotic expansion approach to pricing discretely monitored Asian options in general one-dimensional diffusion models. Our expansion is a small-time expansion because the expansion parameter is selected to be the square root of the length of monitoring interval. This expansion method is distinguished from many other pricing-oriented expansion algorithms in the literature because of two appealing features. First, we illustrate that it is possible to explicitly calculate not only the first several expansion terms but also any general expansion term in a systematic way. Second, the convergence of the expansion is proved rigorously under some regularity conditions. Numerical experiments suggest that the closed-form expansion formula with only a few terms (e.g., four terms up to the third order) is accurate, fast, and easy to implement for a broad range of diffusion models, even including those violating the regularity conditions.