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The boundary value formulation of the Asian call option

In: Numerical Mathematics and Advanced Applications

Author

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  • J. Hugger

    (Università degli Studi, Dipartimento di Matematica “Ennio De Giorgi”
    University of Copenhagen, Institute for Mathematical Sciences)

Abstract

Summary Financial instruments are normall y modelled in stochastic terms (Ito or Stratonovich formulation). This article is an attempt to present the modelling process from an Ito stochastic model to an analytical boundary value problem model. The presentation is given in analytical terms with a minimum of reference to stochastic theory and entirely without financial heuristics, for one particular financial instrument called the Asian option (in particular the fixed strike asian call option with continuous arithmetic average). The end result is a convection diffusion-type problem in two space-like dimensions (stock price and average) plus one time dimension.

Suggested Citation

  • J. Hugger, 2003. "The boundary value formulation of the Asian call option," Springer Books, in: Franco Brezzi & Annalisa Buffa & Stefania Corsaro & Almerico Murli (ed.), Numerical Mathematics and Advanced Applications, pages 409-418, Springer.
    • Handle: RePEc:spr:sprchp:978-88-470-2089-4_38
    DOI: 10.1007/978-88-470-2089-4_38
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