PW book, continuous asians

goshawk · February 13th, 2003, 4:57 pm

In his book Paul states that if you've an asian (average strike option) with arithmetic cont. sampling. Then you can do a similarity reduction from 3 too 2 variables, V(S,I,t) -> V(S,R,t) -> I*W(R,t), R = S/I, I = integrated shareprice. He then just writes the final diff. equation. But I cant find out how he comes up with the eq, can someone please give me some hint on how too apply Ito in this case?

ppauper · February 13th, 2003, 6:53 pm

goshawk · February 13th, 2003, 7:11 pm

Thanks!