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A New Control Variate Estimator for an Asian Option

  • Kenji Kamizono
  • Takeaki Kariya
  • Regina Liu
  • Teruo Nakatsuma
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    There exist several estimators for valuing the Asian option on the arithmetic mean. Among all variance reduction estimators, the one with the control variate derived from the geometric mean has been shown by Boyle et al. (1997) to perform best so far. In this paper, a new improved control variate estimator for this type of Asian option is proposed and investigated. Simulation results confirm that it does perform better than the control variate derived from the geometric mean. The improvement becomes more significant as the volatility increases and/or as the time to expiration lengthens. Copyright Springer Science+Business Media, Inc. 2004

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    File URL: http://hdl.handle.net/10.1007/s10690-006-9007-8
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    Article provided by Springer in its journal Asia-Pacific Financial Markets.

    Volume (Year): 11 (2004)
    Issue (Month): 2 (June)
    Pages: 143-160

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    Handle: RePEc:kap:apfinm:v:11:y:2004:i:2:p:143-160
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    1. Boyle, Phelim & Broadie, Mark & Glasserman, Paul, 1997. "Monte Carlo methods for security pricing," Journal of Economic Dynamics and Control, Elsevier, vol. 21(8-9), pages 1267-1321, June.
    2. Hua He and Akihiko Takahashi., 1995. "A Variable Reduction Technique for Pricing Average-Rate Options," Research Program in Finance Working Papers RPF-249, University of California at Berkeley.
    3. Turnbull, Stuart M. & Wakeman, Lee Macdonald, 1991. "A Quick Algorithm for Pricing European Average Options," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 26(03), pages 377-389, September.
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