Asymptotics for the discrete-time average of the geometric Brownian motion and Asian options

DOI10.1017/APR.2017.9MaRDI QIDQ5233177zbMATH OpenOpenAlexFDO

Authors Dan Pirjol, Lingjiong Zhu

Publication date 16 September 2019

Published in Advances in Applied Probability (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1706.09659

zbMATH Keywords

Asian optionBerry-Esseen boundcentral limit theoremlarge deviations

Mathematics Subject Classification ID

Central limit and other weak theorems (60F05) Large deviations (60F10) Applications of Brownian motions and diffusion theory (population genetics, absorption problems, etc.) (60J70) Derivative securities (option pricing, hedging, etc.) (91G20) Financial applications of other theories (91G80)

Abstract: The time average of geometric Brownian motion plays a crucial role in the pricing of Asian options in mathematical finance. In this paper we consider the asymptotics of the discrete-time average of a geometric Brownian motion sampled on uniformly spaced times in the limit of a very large number of averaging time steps. We derive almost sure limit, fluctuations, large deviations, and also the asymptotics of the moment generating function of the average. Based on these results, we derive the asymptotics for the price of Asian options with discrete-time averaging in the Black-Scholes model, with both fixed and floating strike.

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Cited in

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• Asymptotics for the Euler-discretized Hull-White stochastic volatility model
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• Sensitivities of Asian options in the Black-Scholes model
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• SUBLEADING CORRECTION TO THE ASIAN OPTIONS VOLATILITY IN THE BLACK–SCHOLES MODEL
• Asymptotics for the Laplace transform of the time integral of the geometric Brownian motion
• Some asymptotics for short maturity Asian options
• The stability of the multivariate geometric Brownian motion as a bilinear matrix inequality problem
• The derivatives of Asian call option prices

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