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Path Integral and Asian Options

  • Peng Zhang
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    In this paper we analytically study the problem of pricing an arithmetically averaged Asian option in the path integral formalism. By a trick about the Dirac delta function, the measure of the path integral is defined by an effective action functional whose potential term is an exponential function. This path integral is evaluated by use of the Feynman-Kac theorem. After working out some auxiliary integrations involving Bessel and Whittaker functions, we arrive at the spectral expansion for the value of Asian options.

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    File URL: http://arxiv.org/pdf/1008.4841
    File Function: Latest version
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    Paper provided by arXiv.org in its series Papers with number 1008.4841.

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    Date of creation: Aug 2010
    Date of revision: Nov 2013
    Handle: RePEc:arx:papers:1008.4841
    Contact details of provider: Web page: http://arxiv.org/

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