Efficient pricing of european-style asian options under exponential ĺevy processes based on fourier cosine expansions

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Abstract

We propose an efficient pricing method for arithmetic and geometric Asian options under exponential ĺevy processes based on Fourier cosine expansions and Clenshaw-Curtis quadrature. The pricing method is developed for both European-style and American-style Asian options and for discretely and continuously monitored versions. In the present paper we focus on the European-style Asian options. The exponential convergence rates of Fourier cosine expansions and Clenshaw-Curtis quadrature reduces the CPU time of the method to milliseconds for geometric Asian options and a few seconds for arithmetic Asian options. The method's accuracy is illustrated by a detailed error analysis and by various numerical examples.

Original languageEnglish
Pages (from-to)399-426
Number of pages28
JournalSIAM Journal on Financial Mathematics
Volume4
Issue number1
DOIs
Publication statusPublished - 2013
Externally publishedYes

Keywords

  • Arithmetic Asian options
  • Clenshaw-Curtis quadrature
  • Exponential convergence
  • Exponential ĺevy asset price processes
  • Fourier cosine expansions

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