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Pricing and Hedging Asian Basket Spread Options

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Author Info
Griselda Deelstra
Alexandre Petkovic
Michèle Vanmaele
Abstract

In this paper we consider the problem of pricing a general Asian basket spread option. We develop approximations formulae based on comonotonicity theory and moment matching methods. We compare their relative performances and explain how to choose the best approximation technique as a function of the Asian basket spread characteristics. We also give the Greeks for our proposed methods. In the last section we extend our results to options denominated in foreign currency.

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File URL: http://164.15.69.62/index2.php?option=com_docman&task=doc_view&gid=16&Itemid=204
File Format: application/pdf
File Function: First version, 2008
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Publisher Info
Paper provided by Université Libre de Bruxelles, Ecares in its series ECARES Working Papers with number 2008_004.

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Length: 26 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:eca:wpaper:2008_004

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  1. Simon, S. & Goovaerts, M. J. & Dhaene, J., 2000. "An easy computable upper bound for the price of an arithmetic Asian option," Insurance: Mathematics and Economics, Elsevier, vol. 26(2-3), pages 175-183, May. [Downloadable!] (restricted)
  2. Kaas, Rob & Dhaene, Jan & Goovaerts, Marc J., 2000. "Upper and lower bounds for sums of random variables," Insurance: Mathematics and Economics, Elsevier, vol. 27(2), pages 151-168, October. [Downloadable!] (restricted)
  3. Chen, X. & Deelstra, G. & Dhaene, J. & Vanmaele, M., 2008. "Static super-replicating strategies for a class of exotic options," Insurance: Mathematics and Economics, Elsevier, vol. 42(3), pages 1067-1085, June. [Downloadable!] (restricted)
  4. Nielsen, J. Aase & Sandmann, Klaus, 2003. "Pricing Bounds on Asian Options," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 38(02), pages 449-473, June. [Downloadable!]
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