Pricing and Hedging of Asian Options: Quasi-Explicit Solutions via Malliavin Calculus
AbstractWe use Malliavin calculus and the Clark-Ocone formula to derive the hedging strategy of an arithmetic Asian Call option in general terms. Furthermore we derive an expression for the density of the integral over time of a geometric Brownian motion, which allows us to express hedging strategy and price of the Asian option as an analytic, that is closed form, expression. Numerical computations which are based on this expression are provided.
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Bibliographic InfoPaper provided by Centre for Research into Industry, Enterprise, Finance and the Firm in its series CRIEFF Discussion Papers with number 0910.
Date of creation: Sep 2009
Date of revision:
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Asian options; option pricing; hedging; Malliavin calculus.;
Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-09-05 (All new papers)
- NEP-RMG-2009-09-05 (Risk Management)
- NEP-SEA-2009-09-05 (South East Asia)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Carr, Peter & Ewald, Christian-Oliver & Xiao, Yajun, 2008.
"On the qualitative effect of volatility and duration on prices of Asian options,"
Finance Research Letters,
Elsevier, vol. 5(3), pages 162-171, September.
- Peter Carr & Christian-Oliver Ewald & Yajun Xiao, 2008. "On the Qualitative Effect of Volatility and Duration on Prices of Asian Options," CRIEFF Discussion Papers 0803, Centre for Research into Industry, Enterprise, Finance and the Firm.
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