IDEAS home Printed from https://ideas.repec.org/a/wsi/afexxx/v15y2020i01ns2010495220500013.html
   My bibliography  Save this article

An Efficient Variance Reduction-Based Simulation Algorithm For Pricing Arithmetic Asian Options

Author

Listed:
  • FARSHID MEHRDOUST

    (Department of Applied Mathematics, Faculty of Mathematical Sciences, University of Guilan, Rasht, Iran)

  • IDIN NOORANI

    (Department of Applied Mathematics, Faculty of Mathematical Sciences, University of Guilan, Rasht, Iran)

Abstract

This paper proposes a new hybrid algorithm to price the arithmetic Asian options under the geometric Brownian motion (GBM). The proposed algorithm is based on the control variate technique, such that the control variable is a combination of the barrier arithmetic Asian option and the geometric Asian option, which each one will be estimated by the importance sampling and the control variate techniques, respectively. Besides, we drive a conditional expectation for the estimator that it can reduce variance of simulations. The merits of the proposed algorithm for pricing arithmetic Asian options are illustrated by several examples.

Suggested Citation

  • Farshid Mehrdoust & Idin Noorani, 2020. "An Efficient Variance Reduction-Based Simulation Algorithm For Pricing Arithmetic Asian Options," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 15(01), pages 1-17, March.
    • Handle: RePEc:wsi:afexxx:v:15:y:2020:i:01:n:s2010495220500013
    DOI: 10.1142/S2010495220500013
    as

    Download full text from publisher

    File URL: http://www.worldscientific.com/doi/abs/10.1142/S2010495220500013
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://libkey.io/10.1142/S2010495220500013?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

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


    Cited by:

    1. Abbaspour, Manijeh & Vajargah, Kianoush Fathi & Azhdari, Parvin, 2023. "An efficient algorithm for pricing reinsurance contract under the regime-switching model," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 211(C), pages 278-300.

    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:wsi:afexxx:v:15:y:2020:i:01:n:s2010495220500013. 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: Tai Tone Lim (email available below). General contact details of provider: http://www.worldscinet.com/afe/afe.shtml .

    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.