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Accurate closed‐form approximation for pricing Asian and basket options

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  • Jinke Zhou
  • Xiaolu Wang

Abstract

By approximating the distribution of the sum of correlated lognormals with some log‐extended‐skew‐normal distribution, we present closed‐form approximation formulae for pricing both Asian and basket options. Numerical comparison shows that our formulae provide both computational simplicity and accuracy. Copyright © 2008 John Wiley & Sons, Ltd.

Suggested Citation

  • Jinke Zhou & Xiaolu Wang, 2008. "Accurate closed‐form approximation for pricing Asian and basket options," Applied Stochastic Models in Business and Industry, John Wiley & Sons, vol. 24(4), pages 343-358, July.
    • Handle: RePEc:wly:apsmbi:v:24:y:2008:i:4:p:343-358
    DOI: 10.1002/asmb.714
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    Cited by:

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    2. Yijuan Liang & Xiuchuan Xu, 2019. "Variance and Dimension Reduction Monte Carlo Method for Pricing European Multi-Asset Options with Stochastic Volatilities," Sustainability, MDPI, vol. 11(3), pages 1-21, February.
    3. Geon Ho Choe & Minseok Kim, 2021. "Closed‐form lower bounds for the price of arithmetic average Asian options by multiple conditioning," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 41(12), pages 1916-1932, December.

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