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An effective hybrid variance reduction method for pricing the Asian options and its variants

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  • Lu, King-Jeng
  • Liang, Chiung-Ju
  • Hsieh, Ming-Hua
  • Lee, Yi-Hsi

Abstract

In this paper, we propose a variance reduction method that combines importance sampling and control variates to price European Arithmetic Asian options and its variants (i.e., Asian options plus knock-in or knock-out options) under the Black-Scholes model. The numerical results show that the proposed methods are especially efficient under the following scenarios: in the money, low volatility, more sampling dates, and higher barrier thresholds.

Suggested Citation

  • Lu, King-Jeng & Liang, Chiung-Ju & Hsieh, Ming-Hua & Lee, Yi-Hsi, 2020. "An effective hybrid variance reduction method for pricing the Asian options and its variants," The North American Journal of Economics and Finance, Elsevier, vol. 51(C).
    • Handle: RePEc:eee:ecofin:v:51:y:2020:i:c:s1062940818305825
    DOI: 10.1016/j.najef.2019.04.004
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    References listed on IDEAS

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