Moment-Matching Approximations for Asian Options

Chien-Ling Lo, Palmer Kenneth J., Min-Teh Yu

Research output: Contribution to journalArticle

6 Scopus citations

Abstract

This study provides a generalized framework under which all types of Asian options can be priced: fixed and floating strike, forward starting, and in progress. We not only extend the previous studies to our framework, but also propose a new and theoretically supported closed-form approximation for the option prices. We utilize the moment-matching approach, providing a tractable, flexible, and efficient iterative method to calculate the moments. This study also suggests that the use of a Taylor expansion is unnecessary and exhibits the considerable improvement achieved by avoiding truncation errors.
Original languageEnglish
Pages (from-to)103-122
Number of pages20
JournalJournal of Derivatives
Volume21
Issue number4
DOIs
StatePublished - 2014

Keywords

  • FLOATING-STRIKE; SUM; BOUNDS

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