SHORT MATURITY ASIAN OPTIONS for the CEV MODEL

Dan Pirjol, Lingjiong Zhu

Research output: Contribution to journalArticlepeer-review

5 Scopus citations

Abstract

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.

Original languageEnglish
Pages (from-to)258-290
Number of pages33
JournalProbability in the Engineering and Informational Sciences
Volume33
Issue number2
DOIs
StatePublished - 1 Apr 2019

Keywords

  • CEV model
  • large deviations
  • sAsian options
  • short maturity
  • variational problem

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