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A New Control Variate Estimator for an Asian Option

Author

Listed:
  • Kenji Kamizono
  • Takeaki Kariya
  • Regina Liu
  • Teruo Nakatsuma

Abstract

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

Suggested Citation

  • Kenji Kamizono & Takeaki Kariya & Regina Liu & Teruo Nakatsuma, 2004. "A New Control Variate Estimator for an Asian Option," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 11(2), pages 143-160, June.
  • Handle: RePEc:kap:apfinm:v:11:y:2004:i:2:p:143-160
    DOI: 10.1007/s10690-006-9007-8
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    References listed on IDEAS

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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 & Akihiko Takahashi, 2000. "A Variable Reduction Technique for Pricing Average-rate Options," International Review of Finance, International Review of Finance Ltd., vol. 1(2), pages 123-142.
    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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    Cited by:

    1. Takahiko Fujita & Masahiro Ishii, 2010. "Valuation of a Repriceable Executive Stock Option," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 17(1), pages 1-18, March.

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