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Semidefinite Programming Approaches for Bounding Asian Option Prices

In: Computational Methods in Financial Engineering

Author

Listed:
  • Georgios V. Dalakouras

    (University of Florida)

  • Roy H. Kwon

    (University of Toronto)

  • Panos M. Pardalos

    (University of Florida)

Abstract

Semidefinite programming (SDP) approaches are considered for obtaining bounds for the price of an arithmetic average Asian option. A method for computing the moments of the distribution of prices is developed which enables the method of Bertsimas and Popescu to be extended for the case of the Asian option. In particular, several SDP formulations for upper and lower bounds of the price of an Asian option are given based on different representations of the payoffs of the option. The formulations are amenable to standard SDP computational methods.

Suggested Citation

  • Georgios V. Dalakouras & Roy H. Kwon & Panos M. Pardalos, 2008. "Semidefinite Programming Approaches for Bounding Asian Option Prices," Springer Books, in: Erricos J. Kontoghiorghes & Berç Rustem & Peter Winker (ed.), Computational Methods in Financial Engineering, pages 103-116, Springer.
    • Handle: RePEc:spr:sprchp:978-3-540-77958-2_6
    DOI: 10.1007/978-3-540-77958-2_6
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    Cited by:

    1. Roy H. Kwon & Jonathan Y. Li, 2016. "A stochastic semidefinite programming approach for bounds on option pricing under regime switching," Annals of Operations Research, Springer, vol. 237(1), pages 41-75, February.
    2. Roy Kwon & Jonathan Li, 2016. "A stochastic semidefinite programming approach for bounds on option pricing under regime switching," Annals of Operations Research, Springer, vol. 237(1), pages 41-75, February.

    More about this item

    Keywords

    Asian options; semidefinite programming;

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