The derivatives of Asian call option prices

Pricing the Asian Call Option

Background material on measure-theoretic probability theory and stochastic calculus is provided in order to clarify notation and inform the reader unfamiliar with these concepts. These fields are then employed in exploring two distinct but related approaches to fair option pricing: developing a partial differential equation whose solution, given specified boundary conditions, is the desired fai...

The boundary value formulation of the Asian Call Option

Moment matching approximation of Asian basket option prices

In this paper we propose some moment matching pricing methods for European-style discrete arithmetic Asian basket options in a Black & Scholes framework. We generalize the approach of [5] and of [8] in several ways. We create a framework that allows for a whole class of conditioning random variables which are normally distributed. We moment match not only with a lognormal random variable but al...

Term Structure Movements Implicit in Asian Option Prices

In this paper we implement dynamic term structure models that adopt bonds and Asian options in the estimation process. The goal is to analyze the pricing and hedging implications of term structure movements when options are (or not) included in the estimation process. We analyze how options affect the shape, risk premium and hedging structure of the dynamic factors. We find that the inclusion o...

Duality in option pricing based on prices of other derivatives

We clarify a financial meaning of duality in the semi-infinite programming problem which emerges in the context of determining a derivative price range based only on the no-arbitrage assumption and the observed prices of other derivatives. The interpretation links studies in the above context to studies in stochastic models.