Asian options and meromorphic Lévy processes

DOI10.1007/S00780-014-0237-8zbMATH Open1307.60058arXiv1305.0725OpenAlexW1972106190MaRDI QIDQ2255010FDOQ2255010

Alexey Kuznetsov, Daniel Hackmann

Publication date: 6 February 2015

Published in: Finance and Stochastics (Search for Journal in Brave)

Abstract: One method to compute the price of an arithmetic Asian option in a Levy driven model is based on the exponential functional of the underlying Levy process: If we know the distribution of the exponential functional, we can calculate the price of the Asian option via the inverse Laplace transform. In this paper we consider pricing Asian options in a model driven by a general meromorphic Levy process. We prove that the exponential functional is equal in distribution to an infinite product of indepedent beta random variables, and its Mellin transform can be expressed as an infinite product of gamma functions. We show that these results lead to an efficient algorithm for computing the price of the Asian option via the inverse Mellin-Laplace transform, and we compare this method with some other techniques.

Full work available at URL: https://arxiv.org/abs/1305.0725

zbMATH Keywords

Mellin transformAsian optionshyper-exponential processmeromorphic Lévy processes

Mathematics Subject Classification ID

Processes with independent increments; Lévy processes (60G51) Applications of stochastic analysis (to PDEs, etc.) (60H30) Financial applications of other theories (91G80)

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