IDEAS home Printed from https://ideas.repec.org/a/wsi/ijtafx/v12y2009i02ns021902490900518x.html
   My bibliography  Save this article

Implied Volatility From Asian Options Via Monte Carlo Methods

Author

Listed:
  • ZHAOJUN YANG

    () (School of Economics and Trade, Hunan University, 410079, Changsha, China)

  • CHRISTIAN-OLIVER EWALD

    () (School of Mathematical Science, University College Cork, Cork, Ireland;
    Centre for Dynamic Macroeconomic Analysis, University of St. Andrews, St. Andrews, KY16 9AL, UK)

  • YAJUN XIAO

    () (Department of Economics and Finance, Goethe University of Frankfurt, Merton Str. 17/21, 60054 Frankfurt, Germany)

Abstract

We discuss how implied volatilities for OTC traded Asian options can be computed by combining Monte Carlo techniques with the Newton method in order to solve nonlinear equations. The method relies on accurate and fast computation of the corresponding vegas of the option. In order to achieve this we propose the use of logarithmic derivatives instead of the classical approach. Our simulations document that the proposed method shows far better results than the classical approach. Furthermore we demonstrate how numerical results can be improved by localization.

Suggested Citation

  • Zhaojun Yang & Christian-Oliver Ewald & Yajun Xiao, 2009. "Implied Volatility From Asian Options Via Monte Carlo Methods," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 12(02), pages 153-178.
  • Handle: RePEc:wsi:ijtafx:v:12:y:2009:i:02:n:s021902490900518x
    DOI: 10.1142/S021902490900518X
    as

    Download full text from publisher

    File URL: http://www.worldscientific.com/doi/abs/10.1142/S021902490900518X
    Download Restriction: Access to full text is restricted to subscribers

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Higham,Desmond J., 2004. "An Introduction to Financial Option Valuation," Cambridge Books, Cambridge University Press, number 9780521547574, December.
    Full references (including those not matched with items on IDEAS)

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wsi:ijtafx:v:12:y:2009:i:02:n:s021902490900518x. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Tai Tone Lim). General contact details of provider: http://www.worldscinet.com/ijtaf/ijtaf.shtml .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.