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Arithmetic average options in the hyperbolic model

Author

Listed:
  • Larcher Gerhard

    (Department of Financial Mathematics, Johannes Kepler University, Linz, Altenbergerstr. 69, 4040 Linz, Austria.)

  • Predota Martin

    (Department of Mathematics, A Graz University of Technology, Steyrergasse 30, 8010 Graz, Austria. email: predota@finanz.math.TUGraz.at)

  • Tichy Robert F.

    (Department of Mathematics, A Graz University of Technology, Steyrergasse 30, 8010 Graz, Austria. email: predota@finanz.math.TUGraz.at)

Abstract

In this paper, we present a strategy for pricing discrete Asian options, i.e. for options whose payoff depends on the average price of the underlying asset where the average is extended over a fixed period up to the maturity date. Following a recent development in Mathematical Finance (cf. Eberlein, E., Keller, U. and Prause, K. (1998) New insights into smile, mispricing and value at risk: the hyperbolic model, Journal of Business, 71, 371–405), we assume that the log returns of the asset are hyperbolically distributed.

Suggested Citation

  • Larcher Gerhard & Predota Martin & Tichy Robert F., 2003. "Arithmetic average options in the hyperbolic model," Monte Carlo Methods and Applications, De Gruyter, vol. 9(3), pages 227-239, September.
    • Handle: RePEc:bpj:mcmeap:v:9:y:2003:i:3:p:227-239:n:4
    DOI: 10.1515/156939603322728996
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    Cited by:

    1. Dingeç, Kemal Dinçer & Hörmann, Wolfgang, 2012. "A general control variate method for option pricing under Lévy processes," European Journal of Operational Research, Elsevier, vol. 221(2), pages 368-377.
    2. Baldeaux Jan, 2008. "Quasi-Monte Carlo methods for the Kou model," Monte Carlo Methods and Applications, De Gruyter, vol. 14(4), pages 281-302, January.

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