Asian options are path-dependent derivatives. How to price them efficiently and accurately has been a long-standing research and practical problem. Asian options can be priced on the lattice. But only exponential-time algorithms are currently known if such options are to be priced on a lattice without approximation. Although efficient approximation methods are available, most of them lack accuracy guarantees. This paper proposes a novel lattice for pricing Asian options. The resulting exact pricing algorithm runs in subexponential time. This is the first exact lattice algorithm to break the exponential-time barrier. Because this lattice converges to the continuous-time stock price process, the proposed algorithm is guaranteed to converge to the desired continuous-time option value.
|Number of pages||8|
|State||Published - 15 Apr 2004|
|Event||Proceedings of the Fifteenth Annual ACM-SIAM Symposium on Discrete Algorithms - New Orleans, LA., United States|
Duration: 11 Jan 2004 → 13 Jan 2004
|Conference||Proceedings of the Fifteenth Annual ACM-SIAM Symposium on Discrete Algorithms|
|City||New Orleans, LA.|
|Period||11/01/04 → 13/01/04|