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On lower and upper bounds for Asian-type options: a unified approach

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  • Alexander Novikov
  • Nino Kordzakhia

Abstract

In the context of dealing with financial risk management problems it is desirable to have accurate bounds for option prices in situations when pricing formulae do not exist in the closed form. A unified approach for obtaining upper and lower bounds for Asian-type options, including options on VWAP, is proposed in this paper. The bounds obtained are applicable to the continuous and discrete-time frameworks for the case of time-dependent interest rates. Numerical examples are provided to illustrate the accuracy of the bounds.

Suggested Citation

  • Alexander Novikov & Nino Kordzakhia, 2013. "On lower and upper bounds for Asian-type options: a unified approach," Papers 1309.2383, arXiv.org.
  • Handle: RePEc:arx:papers:1309.2383
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    File URL: http://arxiv.org/pdf/1309.2383
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    References listed on IDEAS

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    1. Lemmens, D. & Liang, L.Z.J. & Tempere, J. & De Schepper, A., 2010. "Pricing bounds for discrete arithmetic Asian options under Lévy models," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 389(22), pages 5193-5207.
    2. Jan Vecer & Mingxin Xu, 2004. "Pricing Asian options in a semimartingale model," Quantitative Finance, Taylor & Francis Journals, vol. 4(2), pages 170-175.
    3. Fusai, Gianluca & Meucci, Attilio, 2008. "Pricing discretely monitored Asian options under Levy processes," Journal of Banking & Finance, Elsevier, vol. 32(10), pages 2076-2088, October.
    4. Michael Curran, 1994. "Valuing Asian and Portfolio Options by Conditioning on the Geometric Mean Price," Management Science, INFORMS, vol. 40(12), pages 1705-1711, December.
    5. H. Albrecher & P. A. Mayer & W. Schoutens, 2008. "General Lower Bounds for Arithmetic Asian Option Prices," Applied Mathematical Finance, Taylor & Francis Journals, vol. 15(2), pages 123-149.
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    Cited by:

    1. Alexander Buryak & Ivan Guo, 2014. "Effective and simple VWAP option pricing model," Papers 1407.7315, arXiv.org.
    2. Andrew Lyasoff, 2016. "Another look at the integral of exponential Brownian motion and the pricing of Asian options," Finance and Stochastics, Springer, vol. 20(4), pages 1061-1096, October.
    3. repec:wsi:ijtafx:v:17:y:2014:i:06:n:s0219024914500368 is not listed on IDEAS

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