A closed form model for a geometric average option

daveangel · May 17th, 2004, 1:13 pm

I need a closed form model for a geometric average option with discrete sampling of the average...thanks

DavidJN · May 17th, 2004, 3:37 pm

A good place to look might be the book by Peter Zhang called "Exotic Options: A Guide to the Second Generations Options", 1997. Average options are treated there pretty comprehensively.

daveangel · May 17th, 2004, 6:17 pm

I was hoping for something on the internet as I dont wish to add another derivatives text to my collection.

Veegan · May 17th, 2004, 10:21 pm

QuoteOriginally posted by: daveangelI need a closed form model for a geometric average option with discrete sampling of the average...thanksThere is a nice thesis on the web by a chap called Lars B. Nielsen entitled 'Pricing Asian Options.' He includes the derivation of the closed form formula for discrete geometric asians.V.

daveangel · May 18th, 2004, 5:02 am

Thanks .. I will look it up.

Kane · May 19th, 2004, 8:21 am

Here's a word document containing formula and my VBA implementation for discretely sampled geometric asians...just copy-paste to your excel workbook (VBA module) and try itSince this is for educational purposes only: Use at your own risk! (please let me know if you find any errors)...allthough I'm pretty confident that it works...(knock-knock on wood)Note that DateArray and PriceArray are vectors (same size). First entry in DateArray must be start date and corresponding entry in PriceArray must be the start value (this price is not used for averageing). Second entry in DateArray should be the first averageing date i.e: if the averageing starts from the start date this should be set equal to start date. If second entry is the maturity date then function returns the price of a european call (or put). These Arrays take care of the passage of time and running average calculations...Hope this helpsIf you have any comments, please shareKane

daveangel · May 19th, 2004, 10:08 am

thanks - will let u know if there are any bugs !!

Kane · May 19th, 2004, 10:20 am

By the way...the thesis Veegan mentioned can be downloaded (along with excel woorkbooks, VBA codes etc.) fromhttp://www.lbn.dk/master/Kane

Energetic · May 21st, 2004, 7:26 pm

The solution can be found in the paper by Ton Vorst in "The Handbook of Exotic Options" edited by I. Nelken.