TY - JOUR
T1 - SHORT MATURITY ASIAN OPTIONS for the CEV MODEL
AU - Pirjol, Dan
AU - Zhu, Lingjiong
N1 - Publisher Copyright:
Copyright © Cambridge University Press 2018.
PY - 2019/4/1
Y1 - 2019/4/1
N2 - We present a rigorous study of the short maturity asymptotics for Asian options with continuous-time averaging, under the assumption that the underlying asset follows the constant elasticity of variance (CEV) model. The leading order short maturity limit of the Asian option prices under the CEV model is obtained in closed form. We propose an analytical approximation for the Asian options prices which reproduces the exact short maturity asymptotics, and demonstrate good numerical agreement of the asymptotic results with Monte Carlo simulations and benchmark test cases for option parameters relevant for practical applications.
AB - We present a rigorous study of the short maturity asymptotics for Asian options with continuous-time averaging, under the assumption that the underlying asset follows the constant elasticity of variance (CEV) model. The leading order short maturity limit of the Asian option prices under the CEV model is obtained in closed form. We propose an analytical approximation for the Asian options prices which reproduces the exact short maturity asymptotics, and demonstrate good numerical agreement of the asymptotic results with Monte Carlo simulations and benchmark test cases for option parameters relevant for practical applications.
KW - CEV model
KW - large deviations
KW - sAsian options
KW - short maturity
KW - variational problem
UR - http://www.scopus.com/inward/record.url?scp=85047974188&partnerID=8YFLogxK
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U2 - 10.1017/S0269964818000165
DO - 10.1017/S0269964818000165
M3 - Article
AN - SCOPUS:85047974188
SN - 0269-9648
VL - 33
SP - 258
EP - 290
JO - Probability in the Engineering and Informational Sciences
JF - Probability in the Engineering and Informational Sciences
IS - 2
ER -