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Bounds for Floating-Strike Asian Options using Symmetry

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Author Info
Vicky Henderson
David Hobson
William Shaw
Rafal Wojakowski

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Abstract

This paper studies symmetries between fixed and floating-strike Asian options and exploits this symmetry to derive an upper bound for the price of a floating-strike Asian. This bound only involves fixed-strike Asians and vanillas, and can be computed simply given one of the many efficient methods for pricing fixed-strike Asian options. The bound is exact until after the averaging has begun and again at maturity. The bound is compared to benchmark prices obtained via Monte Carlo simulation in numerical examples.

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Paper provided by Oxford Financial Research Centre in its series OFRC Working Papers Series with number 2003mf04.

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Date of creation: 2003
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Handle: RePEc:sbs:wpsefe:2003mf04

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References listed on IDEAS
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.:
  1. Jiri Hoogland & Dimitri Neumann, 2000. "Asians and cash dividends: Exploiting symmetries in pricing theory," Quantitative Finance Papers cond-mat/0006133, arXiv.org. [Downloadable!]
  2. 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!]
  3. Vicky Henderson & Rafal Wojakowski, 2001. "On the Equivalence of Floating and Fixed-Strike Asian Options," OFRC Working Papers Series 2001mf08, Oxford Financial Research Centre. [Downloadable!]
  4. Bouaziz, Laurent & Briys, Eric & Crouhy, Michel, 1994. "The pricing of forward-starting asian options," Journal of Banking & Finance, Elsevier, vol. 18(5), pages 823-839, October. [Downloadable!] (restricted)
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  1. Allen Abrahamson, 2003. "Efficient Path-Dependent Valuation Using Lattices: Fixed and Floating Strike Asian Options," Finance 0305005, EconWPA. [Downloadable!]
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