Early Exercise Boundary for American Type of Floating Strike Asian Option and Its Numerical Approximation
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Publication:2889595
DOI10.1080/1350486X.2010.547041zbMATH Open1251.91058arXiv0912.1321OpenAlexW3121220780MaRDI QIDQ2889595FDOQ2889595
Authors: Tomáš Bokes, Daniel Ševčovič 
Publication date: 8 June 2012
Published in: Applied Mathematical Finance (Search for Journal in Brave)
Abstract: In this paper we generalize and analyze the model for pricing American-style Asian options due to (Hansen and Jorgensen 2000) by including a continuous dividend rate and a general method of averaging of the floating strike. We focus on the qualitative and quantitative analysis of the early exercise boundary. The first order Taylor series expansion of the early exercise boundary close to expiry is constructed. We furthermore propose an efficient numerical algorithm for determining the early exercise boundary position based on the front fixing method. Construction of the algorithm is based on a solution to a nonlocal parabolic partial differential equation for the transformed variable representing the synthesized portfolio. Various numerical results and comparisons of our numerical method and the method developed by (Dai and Kwok 2006) are presented.
Full work available at URL: https://arxiv.org/abs/0912.1321
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Derivative securities (option pricing, hedging, etc.) (91G20) Numerical methods (including Monte Carlo methods) (91G60)
Cites Work
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Cited In (10)
- Asian strike options of American type and game type
- Sensitivity analysis of the early exercise boundary for American style of Asian option
- Optimal Exercise Policies and Simulation-Based Valuation for American-Asian Options
- ASIAN OPTIONS WITH THE AMERICAN EARLY EXERCISE FEATURE
- An efficient numerical method for the valuation of American better-of options based on the front-fixing transform and the far field truncation
- Exercise boundary of American-style Asian option
- Early exercise boundaries for American-style knock-out options
- Comparison of two numerical methods for computation of American type of the floating strike Asian option
- Pricing arithmetic Asian put option with early exercise boundary under jump-diffusion process
- Valuation of the American-style of Asian option by a solution to an integral equation
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