An Exact Subexponential-Time Lattice Algorithm for Asian Options

Tian-Shyr Dai*, Yuh Dauh Lyuu

*Corresponding author for this work

Research output: Contribution to conferencePaper

6 Scopus citations

Abstract

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.

Original languageEnglish
Pages703-710
Number of pages8
StatePublished - 15 Apr 2004
EventProceedings of the Fifteenth Annual ACM-SIAM Symposium on Discrete Algorithms - New Orleans, LA., United States
Duration: 11 Jan 200413 Jan 2004

Conference

ConferenceProceedings of the Fifteenth Annual ACM-SIAM Symposium on Discrete Algorithms
CountryUnited States
CityNew Orleans, LA.
Period11/01/0413/01/04

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    Dai, T-S., & Lyuu, Y. D. (2004). An Exact Subexponential-Time Lattice Algorithm for Asian Options. 703-710. Paper presented at Proceedings of the Fifteenth Annual ACM-SIAM Symposium on Discrete Algorithms, New Orleans, LA., United States.