TY - JOUR
T1 - Single-transform formulas for pricing Asian options in a general approximation framework under Markov processes
AU - Cui, Zhenyu
AU - Lee, Chihoon
AU - Liu, Yanchu
N1 - Publisher Copyright:
© 2017 Elsevier B.V.
PY - 2018/5/1
Y1 - 2018/5/1
N2 - Recently, Cai, Song, and Kou (2015) proposed closed-form double transform approximation formulas for prices of both discretely and continuously monitored Asian options under the setting of a general continuous-time Markov chain. In this note, we analytically invert the Z-transform and the Laplace transform involved in their final results, respectively, for the discretely and the continuously monitored cases, and we obtain explicit single Laplace transforms of option prices. This reduction in the dimension of numerical integral has meaningful consequences both in computational efficiency and in practical implementation of the formulas. Extensive numerical experiments illustrate the improved performance of our results.
AB - Recently, Cai, Song, and Kou (2015) proposed closed-form double transform approximation formulas for prices of both discretely and continuously monitored Asian options under the setting of a general continuous-time Markov chain. In this note, we analytically invert the Z-transform and the Laplace transform involved in their final results, respectively, for the discretely and the continuously monitored cases, and we obtain explicit single Laplace transforms of option prices. This reduction in the dimension of numerical integral has meaningful consequences both in computational efficiency and in practical implementation of the formulas. Extensive numerical experiments illustrate the improved performance of our results.
KW - Asian option
KW - Continuous-time Markov chain
KW - Finance
KW - Laplace transform
KW - Markov process
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U2 - 10.1016/j.ejor.2017.10.049
DO - 10.1016/j.ejor.2017.10.049
M3 - Article
AN - SCOPUS:85033403137
SN - 0377-2217
VL - 266
SP - 1134
EP - 1139
JO - European Journal of Operational Research
JF - European Journal of Operational Research
IS - 3
ER -