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Pricing Geometric Asian Options under the CEV Process

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  • Bin Peng

Abstract

This paper discusses the pricing of geometric 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 geometric 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 geometric Asian options when the stock price follows the CEV process. We present numerical results to demonstrate the validity and the convergence of the approach for the different parameter values set in the CEV process.

Suggested Citation

  • Bin Peng, 2006. "Pricing Geometric Asian Options under the CEV Process," International Economic Journal, Taylor & Francis Journals, vol. 20(4), pages 515-522.
    • Handle: RePEc:taf:intecj:v:20:y:2006:i:4:p:515-522
    DOI: 10.1080/10168730500515316
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    References listed on IDEAS

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    1. MacBeth, James D & Merville, Larry J, 1980. "Tests of the Black-Scholes and Cox Call Option Valuation Models," Journal of Finance, American Finance Association, vol. 35(2), pages 285-301, May.
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    Cited by:

    1. Friedrich Hubalek & Martin Keller-Ressel & Carlo Sgarra, 2014. "Geometric Asian Option Pricing in General Affine Stochastic Volatility Models with Jumps," Papers 1407.2514, arXiv.org.
    2. Gifty Malhotra & R. Srivastava & H. C. Taneja, 2019. "Pricing of the Geometric Asian Options Under a Multifactor Stochastic Volatility Model," Papers 1912.10640, arXiv.org.
    3. 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.
    4. Sesana, Debora & Marazzina, Daniele & Fusai, Gianluca, 2014. "Pricing exotic derivatives exploiting structure," European Journal of Operational Research, Elsevier, vol. 236(1), pages 369-381.

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