Some asymptotics for short maturity Asian options
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Publication:6426097
arXiv2302.05421MaRDI QIDQ6426097FDOQ6426097
Authors: Humayra Shoshi, Indranil SenGupta 
Publication date: 10 February 2023
Abstract: Most of the existing methods for pricing Asian options are less efficient in the limit of small maturities and small volatilities. In this paper, we use the large deviations theory for the analysis of short-maturity Asian options. We present a local volatility model for the underlying market that incorporates a jump term in addition to the drift and diffusion terms. We estimate the asymptotics for the out-of-the-money, in-the-money, and at-the-money short-maturity Asian call and put options. Under appropriate assumptions, we show that the asymptotics for out-of-the-money Asian call and put options are governed by rare events. For the at-the-money Asian options, the result is more involved and in that case, we find the upper and lower bounds of the asymptotics of the Asian option price.
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