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Pricing of geometric average Asian option under the sub-diffusion Merton interest rate model

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  • Ping Zhao
  • Zhidong Guo

Abstract

Asian option is an essentially new type of option. In existing option pricing models, the Brownian motion is generally the stochastic driving source of changes in the underlying asset price. This article explores the pricing problem of geometric average Asian option under the sub-diffusive Merton interest rate model. The results obtained the partial differential equations satisfied by the geometric average Asian option via constructing portfolios and utilizing the delta hedging technique. Finally, the findings provide display expressions for the geometric average Asian option under the sub-diffusive Merton interest rate model, combined with boundary conditions and variable substitutions.

Suggested Citation

  • Ping Zhao & Zhidong Guo, 2025. "Pricing of geometric average Asian option under the sub-diffusion Merton interest rate model," Communications in Statistics - Theory and Methods, Taylor & Francis Journals, vol. 54(6), pages 1623-1636, March.
    • Handle: RePEc:taf:lstaxx:v:54:y:2025:i:6:p:1623-1636
    DOI: 10.1080/03610926.2024.2348070
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