Fourier transform of the continuous arithmetic Asian options PDE

DOI10.5402/2011/643749MaRDI QIDQ420220zbMATH OpenOpenAlexWikidataFDO

Authors Zieneb Ali Elshegmani, Rokiah Rozita Ahmad

Publication date 21 May 2012

Published in ISRN Applied Mathematics (Search for Journal in Brave)

Copyright license Creative Commons Attribution 3.0 Unported

Full work available at URL https://doi.org/10.5402/2011/643749

Mathematics Subject Classification ID

PDEs in connection with game theory, economics, social and behavioral sciences (35Q91) Numerical methods for discrete and fast Fourier transforms (65T50) Numerical methods (including Monte Carlo methods) (91G60)

Review text

Summary: The price of arithmetic Asian options is not known in a closed-form solution, since arithmetic Asian option PDE is a degenerate partial differential equation in three dimensions. We provide a new method for computing the continuous arithmetic Asian option price by means of partial differential equations. Using Fourier transform and changing some variables of the PDE we get a new direct method for solving the governing PDE without reducing the dimensionality of the PDE as most authors have done. We transform the second-order PDE with nonconstant coefficients to the first order with constant coefficients, which can be solved analytically.

Recommendations

• Laplace and Fourier transforms on arithmetic Asian options
• New pricing formula for arithmetic Asian options using PDE approach
• Transforming arithmetic Asian option PDE to the parabolic equation with constant coefficients
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• On the modified arithmetic Asian option equation and its analytical solution

Cites work

• A different approach for pricing Asian options
• BESSEL PROCESSES, ASIAN OPTIONS, AND PERPETUITIES
• Differential equations and asymptotic solutions for arithmetic Asian options: ‘Black–Scholes formulae’ for Asian rate calls
• On the modified arithmetic Asian option equation and its analytical solution
• Pricing Asian options in a semimartingale model
• SOME RESULTS ON PARTIAL DIFFERENTIAL EQUATIONS AND ASIAN OPTIONS

Cited in

(4)

• Analytical solution for an arithmetic Asian option using Mellin transforms
• FOURIER TRANSFORM METHOD WITH AN ASYMPTOTIC EXPANSION APPROACH: AN APPLICATION TO CURRENCY OPTIONS
• Transforming arithmetic Asian option PDE to the parabolic equation with constant coefficients
• Laplace and Fourier transforms on arithmetic Asian options

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