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Black-Scholes formulae for Asian options in local volatility models

  • Paolo Foschi

    ()

    (Università di Bologna)

  • Stefano Pagliarani

    ()

    (Università di Padova)

  • Andrea Pascucci

    ()

    (Università di Bologna)

We develop approximate formulae expressed in terms of elementary functions for the density, the price and the Greeks of path dependent options of Asian style, in a general local volatility model. An algorithm for computing higher order approximations is provided. The proof is based on a heat kernel expansion method in the framework of hypoelliptic, not uniformly parabolic, partial differential equations.

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Paper provided by Department of Statistics, University of Bologna in its series Quaderni di Dipartimento with number 7.

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Length: 29
Date of creation: 2011
Date of revision:
Handle: RePEc:bot:quadip:111
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