Finite Difference Scheme for Asian

Muis · November 25th, 2005, 8:57 am

Can anyone plz give me a suitable reference or at least where to start working on a finite difference scheme for pricing asian options

noyghou · November 25th, 2005, 9:04 am

think you may wanna look at the topic of similarity reduction. once you have the PDE about the reduced variable, any standard FD scheme (Crank Nicholson for e.g.) would be straightforward. if not, you probably have to consider the extra dimension (A) in construction of lattice. hope this helps.noy

Jonathan81 · November 25th, 2005, 9:48 am

you can read "princing financial instrument the finite differente method" Tavella & Randall, they give the PDE and explain how to solve it ( you must add a dimension at your pde and use continuity like for cliquet for exemple)

Cuchulainn · November 25th, 2005, 4:09 pm

QuoteOriginally posted by: MuisCan anyone plz give me a suitable reference or at least where to start working on a finite difference scheme for pricing asian optionsYes, my C++ book and the forthcoming book on FDM. It's in these.Normally ADI is used but there are better methods. Tricky is the treatment of boundary conditions.Daniel J. Duffyhttp://www.amazon.com/exec/obidos/search-handl ... 92-9895204

Cuchulainn · November 25th, 2005, 4:13 pm

QuoteOriginally posted by: noyghouthink you may wanna look at the topic of similarity reduction. once you have the PDE about the reduced variable, any standard FD scheme (Crank Nicholson for e.g.) would be straightforward. if not, you probably have to consider the extra dimension (A) in construction of lattice. hope this helps.noyThis is indeed possible, but continuously monitored European Asians are fairly easy. I think that Vecer has an exact solution.

jfuqua · March 4th, 2006, 4:40 pm

Zvan Robert, Peter Forsyth, Kenneth Vetzal 'Robust Numerical Methods for PDE Models of Asian Options' J.Comp.Finance Winter 98 V.1#2Lelievre Tony, Francois Dubois 'Efficient pricing of Asian options by the PDE approach' J. Comp. Finance Winter 04/05https://www.math.gatech.edu/~meyer/PUBS/alg2000.pdf