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Pricing and Hedging of Asian Options: Quasi-Explicit Solutions via Malliavin Calculus

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Author Info
Zhaojun Yang
Christian-Oliver Ewald
Olaf Menkens

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Abstract

We 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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Publisher Info
Paper provided by Centre for Research into Industry, Enterprise, Finance and the Firm in its series CRIEFF Discussion Papers with number 0910.

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Date of creation: Sep 2009
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Handle: RePEc:san:crieff:0910

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Related research
Keywords: Asian options; option pricing; hedging; Malliavin calculus.;

Find related papers by JEL classification:
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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  1. 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. [Downloadable!] (restricted)
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This page was last updated on 2009-11-24.

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