Asian option pricing with orthogonal polynomials

DOI10.1080/14697688.2018.1526396MaRDI QIDQ5234316zbMATH OpenOpenAlexWikidataFDO

Authors Sander Willems

Publication date 26 September 2019

Published in Quantitative Finance (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1802.01307

zbMATH Keywords

Asian optionoption pricingorthogonal polynomials

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20)

Abstract: In this paper we derive a series expansion for the price of a continuously sampled arithmetic Asian option in the Black-Scholes setting. The expansion is based on polynomials that are orthogonal with respect to the log-normal distribution. All terms in the series are fully explicit and no numerical integration nor any special functions are involved. We provide sufficient conditions to guarantee convergence of the series. The moment indeterminacy of the log-normal distribution introduces an asymptotic bias in the series, however we show numerically that the bias can safely be ignored in practice.

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• Pricing Asian options with correlators
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Cited in

(25)

• Explicit expressions for the valuation and hedging of the arithmetic Asian option
• Pricing Asian options via compound gamma and orthogonal polynomials
• Solution of option pricing equations using orthogonal polynomial expansion.
• Asian rainbow option pricing formulas of uncertain stock model
• Option pricing with Legendre polynomials
• Moment-matching approximations for stochastic sums in non-Gaussian Ornstein-Uhlenbeck models
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• Laguerre series for Asian and other options
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• LAGUERRE SERIES IN CONTINGENT CLAIM VALUATION, WITH APPLICATIONS TO ASIAN OPTIONS
• A moment expansion approach to option pricing
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• European option pricing formula in risk-averse markets based on the risk measure of VaR
• An orthogonal expansion approach to joint SPX and VIX calibration in affine stochastic volatility models with jumps
• Higher order asymptotic option valuation for non-Gaussian dependent returns
• Pricing American Asian options with higher moments in the underlying distribution

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• OPQ

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