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Pricing Arithmetic Asian Options Under The Cev Process

Author

Listed:
  • Peng, Bin

    (Renmin University, Beijing, P. R., China)

  • Peng, Fei

    (University of British Columbia, Vancouver, Canada)

Abstract

This paper discusses the pricing of arithmetic Asian options when the underlying stock follows the constant elasticity of variance (CEV) process. We build a binomial tree method to estimate the CEV process and use it to price arithmetic Asian options. We find that the binomial tree method for the lognormal case can effectively solve the computational problems arising from the inherent complexities of arithmetic Asian options when the stock price follows CEV process. We present numerical results to demonstrate the validity and the convergence of the approach for the different parameter values set in CEV process.

Suggested Citation

  • Peng, Bin & Peng, Fei, 2010. "Pricing Arithmetic Asian Options Under The Cev Process," Journal of Economics, Finance and Administrative Science, Universidad ESAN, vol. 15(29), pages 7-13.
    • Handle: RePEc:ris:joefas:0020
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    Cited by:

    1. Hi Jun Choe & Jeong Ho Chu & So Jeong Shin, 2014. "Recombining binomial tree for constant elasticity of variance process," Papers 1410.5955, arXiv.org.
    2. Lee, Min-Ku, 2016. "Asymptotic approach to the pricing of geometric asian options under the CEV model," Chaos, Solitons & Fractals, Elsevier, vol. 91(C), pages 544-548.
    3. Cao, Jiling & Kim, Jeong-Hoon & Li, Xi & Zhang, Wenjun, 2023. "Valuation of barrier and lookback options under hybrid CEV and stochastic volatility," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 208(C), pages 660-676.

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