Serving the Quantitative Finance Community
Asian Option Model
I run my PDE and MC model for an asian option model.Find out that MC is cheaper by 30 bps (I hope I didn't reverse the sign)When I talked to the trader, he immediately told me is there a 30bps difference.How does he know that ? is there some kind of analytical formula or trick ?any opinion ?
Asian Option Model
Yes. You can (very, very roughly) recover the price for an Asian option by using a standard option formula and changing the volatility.I need to go look through my papers to see where I've seen this done.
Asian Option Model
Here is a linkhttp://www.global-derivatives.com/options/asian-options.php
Asian Option Model
i think it's divide the vol by sqrt(3) or something like that and plug it into black scholes to get asian call price on geometric avg
-
- Martingale
- Posts: 1
- Joined:
Asian Option Model
if you're using normal model, consider \int_0^1 B_s ds which is gaussian with variance 1/3....that's probably aikmon is talking abt
Asian Option Model
As I recall Ton Vorst was one of the first to write [not necessarily come up with it] about the 1/3 adjustment. I think either the first or third of the papers below describes it.1990 Asian Options on Oil Spreads, (with B.A. Heenk, A.G.Z. Kemna), Review of Futures Markets 9(3), 510-528. 1990 Option Pricing and Stochastic Processes, van der Ploeg (ed.), Quantitative Methods in Economics, Academic Press, London, 421-441. 1990 A Pricing Method for Options Based on Average Asset Value, (with A.G.Z. Kemna), Journal of Banking and Finance 14, 113-129.
Asian Option Model
Just out of curiousity, does anyone trade "geometric average asian options" or is it just a mathematical construct.