An improved binomial method for pricing asian options

Kyoung Sook Moon, Hongjoong Kim

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

We present an improved binomial method for pricing European- and American-type Asian options based on the arithmetic average of the prices of the underlying asset. At each node of the tree we propose a simple algorithm to choose the representative averages among all the effective averages. Then the backward valuation process and the interpolation are performed to compute the price of the option. The simulation results for European and American Asian options show that the proposed method gives much more accurate price than other recent lattice methods with less computational effort.

Original languageEnglish
Pages (from-to)397-406
Number of pages10
JournalCommunications of the Korean Mathematical Society
Volume28
Issue number2
DOIs
Publication statusPublished - 2013 May 10

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Asian Options
Pricing
Interpolation
Costs
American Options
Valuation
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Interpolate
Vertex of a graph
Simulation

Keywords

  • American options
  • Asian option
  • Binomial method
  • Option pricing

ASJC Scopus subject areas

  • Mathematics(all)
  • Applied Mathematics

Cite this

An improved binomial method for pricing asian options. / Moon, Kyoung Sook; Kim, Hongjoong.

In: Communications of the Korean Mathematical Society, Vol. 28, No. 2, 10.05.2013, p. 397-406.

Research output: Contribution to journalArticle

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