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Recursive Formula for Arithmetic Asian Option Prices

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  • Kyungsub Lee

Abstract

I derive a recursive formula for arithmetic Asian option prices with finite observation times in semimartingale models. The method is based on the relationship between the risk‐neutral expectation of the quadratic variation of the return process and European option prices. The computation of arithmetic Asian option prices is straightforward whenever European option prices are available. Applications with numerical results under the Black–Scholes framework and the exponential Lévy model are proposed. © 2012 Wiley Periodicals, Inc. Jrl Fut Mark 34:220–234, 2014

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  • Kyungsub Lee, 2014. "Recursive Formula for Arithmetic Asian Option Prices," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 34(3), pages 220-234, March.
    • Handle: RePEc:wly:jfutmk:v:34:y:2014:i:3:p:220-234
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    Cited by:

    1. Kyungsub Lee & Byoung Ki Seo, 2021. "Analytic formula for option margin with liquidity costs under dynamic delta hedging," Papers 2103.15302, arXiv.org.
    2. Jong Jun Park & Kyungsub Lee, 2019. "Computational method for probability distribution on recursive relationships in financial applications," Papers 1908.04959, arXiv.org.
    3. Rupak Chatterjee & Zhenyu Cui & Jiacheng Fan & Mingzhe Liu, 2018. "An efficient and stable method for short maturity Asian options," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 38(12), pages 1470-1486, December.
    4. Geon Ho Choe & Minseok Kim, 2021. "Closed‐form lower bounds for the price of arithmetic average Asian options by multiple conditioning," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 41(12), pages 1916-1932, December.

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