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Pricing of Asian-type and Basket Options via Upper and Lower Bounds

Author

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  • Alexander Novikov
  • Scott Alexander
  • Nino Kordzakhia
  • Timothy Ling

Abstract

This paper sets out to provide a general framework for the pricing of average-type options via lower and upper bounds. This class of options includes Asian, basket and options on the volume-weighted average price. We demonstrate that in cases under discussion lower bounds allow for the dimensionality of the problem to be reduced and that these methods provide reasonable approximations to the price of the option. Keywords: Asian options, Basket options, Lower and Upper bounds, Volume-weighted average prices (VWAP), Levy processes.

Suggested Citation

  • Alexander Novikov & Scott Alexander & Nino Kordzakhia & Timothy Ling, 2016. "Pricing of Asian-type and Basket Options via Upper and Lower Bounds," Papers 1612.08767, arXiv.org.
    • Handle: RePEc:arx:papers:1612.08767
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    References listed on IDEAS

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    1. Martin Forde & Antoine Jacquier, 2010. "Robust Approximations for Pricing Asian Options and Volatility Swaps Under Stochastic Volatility," Applied Mathematical Finance, Taylor & Francis Journals, vol. 17(3), pages 241-259.
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    3. Alexander Buryak & Ivan Guo, 2014. "Effective And Simple Vwap Options Pricing Model," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 17(06), pages 1-13.
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    5. Antony William Stace, 2007. "A Moment Matching Approach To The Valuation Of A Volume Weighted Average Price Option," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 10(01), pages 95-110.
    6. Simon, S. & Goovaerts, M. J. & Dhaene, J., 2000. "An easy computable upper bound for the price of an arithmetic Asian option," Insurance: Mathematics and Economics, Elsevier, vol. 26(2-3), pages 175-183, May.
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