IDEAS home Printed from https://ideas.repec.org/a/cup/astinb/v44y2014i02p237-276_00.html
   My bibliography  Save this article

Using Model-Independent Lower Bounds To Improve Pricing Of Asian Style Options In Lévy Markets

Author

Listed:
  • Deelstra, Griselda
  • Rayée, Grégory
  • Vanduffel, Steven
  • Yao, Jing

Abstract

Albrecher et al. (Albrecher, H., Mayer Ph., Schoutens, W. (2008) General lower bounds for arithmetic Asian option prices. Applied Mathematical Finance, 15, 123–149) have proposed model-independent lower bounds for arithmetic Asian options. In this paper we provide an alternative and more elementary derivation of their results. We use the bounds as control variates to develop a simple Monte Carlo method for pricing contracts with Asian-style features. The conditioning idea that is inherent in our approach also inspires us to propose a new semi-analytic pricing approach. We compare both approaches and conclude that these both have their merits and are useful in practice. In particular, we point out that our newly proposed Monte Carlo method allows to deal with Asian-style products that appear in insurance (e.g., unit-linked contracts) in a very efficient way, and outperforms other known Monte Carlo methods that are based on control variates.

Suggested Citation

  • Deelstra, Griselda & Rayée, Grégory & Vanduffel, Steven & Yao, Jing, 2014. "Using Model-Independent Lower Bounds To Improve Pricing Of Asian Style Options In Lévy Markets," ASTIN Bulletin, Cambridge University Press, vol. 44(2), pages 237-276, May.
    • Handle: RePEc:cup:astinb:v:44:y:2014:i:02:p:237-276_00
    as

    Download full text from publisher

    File URL: https://www.cambridge.org/core/product/identifier/S0515036114000063/type/journal_article
    File Function: link to article abstract page
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Florian Stebegg, 2014. "Model-Independent Pricing of Asian Options via Optimal Martingale Transport," Papers 1412.1429, arXiv.org.
    2. Zhou, Ming & Dhaene, Jan & Yao, Jing, 2018. "An approximation method for risk aggregations and capital allocation rules based on additive risk factor models," Insurance: Mathematics and Economics, Elsevier, vol. 79(C), pages 92-100.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cup:astinb:v:44:y:2014:i:02:p:237-276_00. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Kirk Stebbing (email available below). General contact details of provider: https://www.cambridge.org/asb .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.