Moment matching approximation of Asian basket option prices (Q970389)

The authors propose pricing methods for European style discrete arithmetic Asian basket options in a Black/Scholes framework. An Asian basket option (ABS) is a path-dependent multi-asset option whose payoff combines the payoff structure of an Asian option with that of a basket option. In order o obtain approximations of the price of an ABS, in papers by \textit{M. Currang} [Manage. Sci. 40, No. 12, 1705--1711 (1994; Zbl 0824.90012)], \textit{L. C. G. Rogers} and \textit{Z. Shi} [ J. Appl. Probab. 32, No. 4, 1077--1088 (1995; Zbl 0839.90013)], \textit{J. A. Nielsen} and \textit{K. Sandmann} [J. Financ. Quant. Anal. 38, 449--473 (2003)], and \textit{G. Deelstra, J. Liinev} and \textit{M. Vanmaele} [Insur. Math. Econ. 34, No. 1, 55--77 (2004; Zbl 1068.91030)] , conditioning variables and/or moment matching methods were used. The main innovation of the present paper is to show how to extend the approximation of Curran (loc. cit.) and Deelstra, Liinev and Vanmaele (loc. cit.) to a broad class of normal conditioning random variables, and to improve upper bounds based on the approach due to Rogers and Shi (loc. cit.).