IDEAS home Printed from https://ideas.repec.org/p/arx/papers/1612.08767.html
   My bibliography  Save this paper

Pricing of Asian-type and Basket Options via Upper and Lower Bounds

Author

Listed:
  • Alexander Novikov
  • Scott Alexander
  • Nino Kordzakhia
  • Timothy Ling

Abstract

This paper sets out to provide a general framework for the pricing of average-type options via lower and upper bounds. This class of options includes Asian, basket and options on the volume-weighted average price. We demonstrate that in cases under discussion lower bounds allow for the dimensionality of the problem to be reduced and that these methods provide reasonable approximations to the price of the option. Keywords: Asian options, Basket options, Lower and Upper bounds, Volume-weighted average prices (VWAP), Levy processes.

Suggested Citation

  • Alexander Novikov & Scott Alexander & Nino Kordzakhia & Timothy Ling, 2016. "Pricing of Asian-type and Basket Options via Upper and Lower Bounds," Papers 1612.08767, arXiv.org.
    • Handle: RePEc:arx:papers:1612.08767
    as

    Download full text from publisher

    File URL: http://arxiv.org/pdf/1612.08767
    File Function: Latest version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Martin Forde & Antoine Jacquier, 2010. "Robust Approximations for Pricing Asian Options and Volatility Swaps Under Stochastic Volatility," Applied Mathematical Finance, Taylor & Francis Journals, vol. 17(3), pages 241-259.
    2. Lemmens, D. & Liang, L.Z.J. & Tempere, J. & De Schepper, A., 2010. "Pricing bounds for discrete arithmetic Asian options under Lévy models," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 389(22), pages 5193-5207.
    3. Alexander Buryak & Ivan Guo, 2014. "Effective And Simple Vwap Options Pricing Model," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 17(06), pages 1-13.
    4. Chun-Sing Lau & Chi-Fai Lo, 2014. "The pricing of basket-spread options," Quantitative Finance, Taylor & Francis Journals, vol. 14(11), pages 1971-1982, November.
    5. Antony William Stace, 2007. "A Moment Matching Approach To The Valuation Of A Volume Weighted Average Price Option," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 10(01), pages 95-110.
    6. Simon, S. & Goovaerts, M. J. & Dhaene, J., 2000. "An easy computable upper bound for the price of an arithmetic Asian option," Insurance: Mathematics and Economics, Elsevier, vol. 26(2-3), pages 175-183, May.
    7. H. Albrecher & P. A. Mayer & W. Schoutens, 2008. "General Lower Bounds for Arithmetic Asian Option Prices," Applied Mathematical Finance, Taylor & Francis Journals, vol. 15(2), pages 123-149.
    8. Michael Curran, 1994. "Valuing Asian and Portfolio Options by Conditioning on the Geometric Mean Price," Management Science, INFORMS, vol. 40(12), pages 1705-1711, December.
    9. Alexander Buryak & Ivan Guo, 2014. "Effective and simple VWAP option pricing model," Papers 1407.7315, arXiv.org.
    10. Margrabe, William, 1978. "The Value of an Option to Exchange One Asset for Another," Journal of Finance, American Finance Association, vol. 33(1), pages 177-186, March.
    11. L. C. G. Rogers, 2002. "Monte Carlo valuation of American options," Mathematical Finance, Wiley Blackwell, vol. 12(3), pages 271-286, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Pingping Zeng & Yue Kuen Kwok, 2016. "Pricing bounds and approximations for discrete arithmetic Asian options under time-changed Lévy processes," Quantitative Finance, Taylor & Francis Journals, vol. 16(9), pages 1375-1391, September.
    2. Alexander Novikov & Nino Kordzakhia, 2013. "On lower and upper bounds for Asian-type options: a unified approach," Papers 1309.2383, arXiv.org.
    3. Weinan Zhang & Pingping Zeng, 2023. "A transform-based method for pricing Asian options under general two-dimensional models," Quantitative Finance, Taylor & Francis Journals, vol. 23(11), pages 1677-1697, November.
    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.
    5. Mark Broadie & Jerome B. Detemple, 2004. "ANNIVERSARY ARTICLE: Option Pricing: Valuation Models and Applications," Management Science, INFORMS, vol. 50(9), pages 1145-1177, September.
    6. Hansjörg Albrecher & Philipp Mayer, 2010. "Semi-Static Hedging Strategies For Exotic Options," World Scientific Book Chapters, in: Rüdiger Kiesel & Matthias Scherer & Rudi Zagst (ed.), Alternative Investments And Strategies, chapter 14, pages 345-373, World Scientific Publishing Co. Pte. Ltd..
    7. Wang, Xingchun & Zhang, Han, 2022. "Pricing basket spread options with default risk under Heston–Nandi GARCH models," The North American Journal of Economics and Finance, Elsevier, vol. 59(C).
    8. Victor Olkhov, 2021. "Three Remarks On Asset Pricing," Papers 2105.13903, arXiv.org, revised Jan 2024.
    9. Olkhov, Victor, 2022. "Market-Based Price Autocorrelation," MPRA Paper 120288, University Library of Munich, Germany, revised 26 Feb 2024.
    10. Lemmens, D. & Liang, L.Z.J. & Tempere, J. & De Schepper, A., 2010. "Pricing bounds for discrete arithmetic Asian options under Lévy models," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 389(22), pages 5193-5207.
    11. Gianluca Fusai & Ioannis Kyriakou, 2016. "General Optimized Lower and Upper Bounds for Discrete and Continuous Arithmetic Asian Options," Mathematics of Operations Research, INFORMS, vol. 41(2), pages 531-559, May.
    12. Victor Olkhov, 2020. "Volatility Depends on Market Trades and Macro Theory," Papers 2008.07907, arXiv.org, revised Jun 2024.
    13. Victor Olkhov, 2020. "Price, Volatility and the Second-Order Economic Theory," Papers 2009.14278, arXiv.org, revised Apr 2021.
    14. Leccadito, Arturo & Paletta, Tommaso & Tunaru, Radu, 2016. "Pricing and hedging basket options with exact moment matching," Insurance: Mathematics and Economics, Elsevier, vol. 69(C), pages 59-69.
    15. Louis-Pierre Arguin & Nien-Lin Liu & Tai-Ho Wang, 2018. "Most-Likely-Path In Asian Option Pricing Under Local Volatility Models," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 21(05), pages 1-32, August.
    16. João Pedro Vidal Nunes & Luís Alberto Ferreira De Oliveira, 2007. "Multifactor and analytical valuation of treasury bond futures with an embedded quality option," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 27(3), pages 275-303, March.
    17. Victor Olkhov, 2022. "Market-Based Asset Price Probability," Papers 2205.07256, arXiv.org, revised Dec 2024.
    18. Jaehyuk Choi, 2018. "Sum of all Black–Scholes–Merton models: An efficient pricing method for spread, basket, and Asian options," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 38(6), pages 627-644, June.
    19. H. Albrecher & P. A. Mayer & W. Schoutens, 2008. "General Lower Bounds for Arithmetic Asian Option Prices," Applied Mathematical Finance, Taylor & Francis Journals, vol. 15(2), pages 123-149.
    20. Ravi Kashyap, 2016. "Options as Silver Bullets: Valuation of Term Loans, Inventory Management, Emissions Trading and Insurance Risk Mitigation using Option Theory," Papers 1609.01274, arXiv.org, revised Mar 2022.

    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:arx:papers:1612.08767. 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.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with 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: arXiv administrators (email available below). General contact details of provider: http://arxiv.org/ .

    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.