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Path Integral and Asian Options

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  • Peng Zhang

Abstract

In this paper we analytically study the problem of pricing an arithmetically averaged Asian option in the path integral formalism. By a trick about the Dirac delta function, the measure of the path integral is defined by an effective action functional whose potential term is an exponential function. This path integral is evaluated by use of the Feynman-Kac theorem. After working out some auxiliary integrations involving Bessel and Whittaker functions, we arrive at the spectral expansion for the value of Asian options.

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  • Peng Zhang, 2010. "Path Integral and Asian Options," Papers 1008.4841, arXiv.org, revised Nov 2013.
    • Handle: RePEc:arx:papers:1008.4841
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    File URL: http://arxiv.org/pdf/1008.4841
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