Analytical valuation of Asian options with counterparty risk under stochastic volatility models

Wang, Xingchun

doi:10.1002/fut.22064

Cited by 20 publications

(6 citation statements)

References 40 publications

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“…The method compares favorably with the spectral expansion method in the case of European Asian options, and the LSMC method in the case of Amerasian options. The idea naturally extends to the more general class of exponential Lévy processes and possibly stochastic volatility models (see, e.g., Wang, 2020), and we leave them to future research. where B is defined in (A9).…”

Section: Amerasian Optionsmentioning

confidence: 99%

Pricing arithmetic Asian and Amerasian options: A diffusion operator integral expansion approach

Ding

Cui

Yang

2022

Journal of Futures Markets

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In this paper, we propose a new explicit series expansion formula for the price of an arithmetic Asian option under the Black–Scholes model and Merton's jump‐diffusion model. The method is based on an equivalence in law relation together with the diffusion operator integral method proposed by Heath and Platen. The method yields explicit series expansion formula for the Asian options' prices. The theoretical convergence of the expansion to the true value is established. We also consider the American Asian option (i.e., Amerasian option) and derive the corresponding expansion formula through the early exercise premium representation. Numerical results illustrate the accuracy and efficiency of the method as compared with benchmarks in the literature.

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Section: Amerasian Optionsmentioning

confidence: 99%

Pricing arithmetic Asian and Amerasian options: A diffusion operator integral expansion approach

Ding

Cui

Yang

2022

Journal of Futures Markets

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“…Moreover, when the issuer's assets and the underlying asset have constant total risk but different proportions of systematic risk, the prices of the Asian option will also be different. And he investigates the differences in this article [9]. Yao et al studied the problem of pricing the conditional Asian option, which is a recently introduced market product and is cheaper than the regular Asian option.…”

Section: Related Researchmentioning

confidence: 99%

An Analysis of Optimized Asian Options

Chen¹,

Lu²,

Zhang³

2022

Proceedings of the 2022 2nd International Conference on Economic Development and Business Culture (ICEDBC 2022)

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Nowadays, the option is an indispensable financial tool in the current financial market. Moreover, the Asian option, as one of the most famous and widely used exotic options, plays a significant role in it. This paper aims to propose a new type of Asian option, which is jointly designed by the authors and makes an improvement based on the regular Asian option better to meet the demands of the current financial market. This paper provides an explicit definition and comprehensive explanation of this new Asian option and explores its unique functions in the financial market compared with the normal Asian option. Furthermore, to verify the effectiveness of the proposed option, this paper selects representative real stock prices and makes some reasonable assumptions. After using Stata to process the data, the performance of the new Asian option is analyzed, and a numerical comparison between the proposed option and the normal Asian option is made. And the effectiveness of the proposed option in mitigating risk is validated. This paper expounds on the proposed option in detail so that readers can develop a deep understanding of it. It also provides some reference for the option issuers to issue new options.

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“…First, it is popular in practice in the financial market because it has a lower cost than its counterpart, the plain vanilla option. Second, averaging underlying asset prices can prevent manipulation from the financial market [7][8][9]. Third, it is commonly used in interest rate and foreign exchange markets, providing an expiry price or strike price that remains more stable than plain vanilla over contract periods.…”

Section: Introductionmentioning

confidence: 99%

Pricing of Arithmetic Asian Options under Stochastic Volatility Dynamics: Overcoming the Risks of High-Frequency Trading

2020

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This research extended the model developed by Hull and White by integrating Taylor-series expansion into the model for deriving approximate analytical solutions for stochastic volatility forward-starting Asian options. Numerical experiments were performed to compare the proposed model with the Monte Carlo model over numerous simulations and demonstrated that the developed model has a pricing accuracy greater than 99%. Furthermore, the computation time was approximately 10−5 s for each simulation. The model’s outstanding computational performance demonstrates its capability to address the challenges of high-frequency trading.

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Analytical valuation of Asian options with counterparty risk under stochastic volatility models

Cited by 20 publications

References 40 publications

Pricing arithmetic Asian and Amerasian options: A diffusion operator integral expansion approach

Pricing arithmetic Asian and Amerasian options: A diffusion operator integral expansion approach

An Analysis of Optimized Asian Options

Pricing of Arithmetic Asian Options under Stochastic Volatility Dynamics: Overcoming the Risks of High-Frequency Trading

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