Hello all,i would like to know how to price an asian option for example on the average of the last 6 periods over a 12 periods scheme. I need this to calculate the pay off of Embedded Option Structured products linked to the perf of a fund of funds?how to use the binomial tree in that case??thanks a lot in advance

If I understand you right this is simply a forward start average rate option. There are several papers on how to do this, also you should possibly incorporate vol term structure see our paper "Asian Pyramid Power" Wilmott mag. For American Asians (known as Hawaii options) there exist various tree model approaches.

an do you have a list of papers pertaining to this kind of options ?

QuoteOriginally posted by: BouBoui would like to know how to price an asian option for example on the average of the last 6 periods over a 12 periods scheme. What you want to do is described in Wilmott's "The Mathematics of Financial Derivatives : A Student Introduction" and also his green book of his(I forget the name).The approach used in this book is via a PDE method. Basically you have a PDE which is in 3 variables V(t,S,I), and get an extra term compared to the BS equation, this term is simply S\frac{\partial d}{\parital I} with I being the running average. This reduces to the BS equation between "sampling dates". The "sampling dates" are where the other variable comes into play and is a time when you incorporate the discrete averaging. This leads to the conditionV(S,I,t_i^{-}) = V(S,I+S,t_i^{+})at the "sampling dates".Question for people who price Asian Options in practice: In practice which method do you use for the pricing of an Asian Option, do you use the PDEs in Wilmotts books, or perhaps for fixed strike the Rogers and Shi method, or one of the almost countless other approximations/methods which seem to have sprung up?Has anyone done a comparison to see if the PDE from Wilmott's book for a fixed strike and the Rogers and Shi method give the same result?CheersTony