Moment matching approximation of Asian basket option prices

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• 作者：Griselda Deelstra ; Ibrahima Diallo ; Michè ; le Vanmaele
• 关键词：Asian basket option ; Sum of non-independent random variables ; Moment matching ; Log-extended-skew-normal
• 刊名：Journal of Computational and Applied Mathematics
• 出版年：2010
• 出版时间：15 June 2010
• 年：2010
• 卷：234
• 期：4
• 页码：1006-1016
• 全文大小：599 K

文摘

In this paper we propose some moment matching pricing methods for European-style discrete arithmetic Asian basket options in a Black & Scholes framework. We generalize the approach of [M. Curran, Valuing Asian and portfolio by conditioning on the geometric mean price, Management Science 40 (1994) 1705–1711] and of [G. Deelstra, J. Liinev, M. Vanmaele, Pricing of arithmetic basket options by conditioning, Insurance: Mathematics & Economics 34 (2004) 55–57] in several ways. We create a framework that allows for a whole class of conditioning random variables which are normally distributed. We moment match not only with a lognormal random variable but also with a log-extended-skew-normal random variable. We also improve the bounds of [G. Deelstra, I. Diallo, M. Vanmaele, Bounds for Asian basket options, Journal of Computational and Applied Mathematics 218 (2008) 215–228]. Numerical results are included and on the basis of our numerical tests, we explain which method we recommend depending on moneyness and time-to-maturity.