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Pricing and Hedging Asian Basket Spread Options

  • Griselda Deelstra
  • Alexandre Petkovic
  • Michèle Vanmaele
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    In this paper we consider the problem of pricing a general Asian basket spread option. We develop approximations formulae based on comonotonicity theory and moment matching methods. We compare their relative performances and explain how to choose the best approximation technique as a function of the Asian basket spread characteristics. We also give the Greeks for our proposed methods. In the last section we extend our results to options denominated in foreign currency.

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    File URL: https://dipot.ulb.ac.be/dspace/bitstream/2013/54072/1/RePEc_eca_wpaper_2008_004.pdf
    File Function: RePEc_eca_wpaper_2008_004
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    Paper provided by ULB -- Universite Libre de Bruxelles in its series Working Papers ECARES with number 2008_004.

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    Length: 26 p.
    Date of creation: 2008
    Date of revision:
    Publication status: Published by:
    Handle: RePEc:eca:wpaper:2008_004
    Contact details of provider: Postal: Av. F.D., Roosevelt, 39, 1050 Bruxelles
    Phone: (32 2) 650 30 75
    Fax: (32 2) 650 44 75
    Web page: http://difusion.ulb.ac.be

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    1. Nielsen, J. Aase & Sandmann, Klaus, 2003. "Pricing Bounds on Asian Options," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 38(02), pages 449-473, June.
    2. Griselda Deelstra & Jan Liinev & Michèle Vanmaele, 2004. "Pricing of arithmetic basket options by conditioning," ULB Institutional Repository 2013/7600, ULB -- Universite Libre de Bruxelles.
    3. David Hobson & Peter Laurence & Tai-Ho Wang, 2005. "Static-arbitrage upper bounds for the prices of basket options," Quantitative Finance, Taylor & Francis Journals, vol. 5(4), pages 329-342.
    4. Bjerksund, Petter & Stensland, Gunnar, 2006. "Closed form spread option valuation," Discussion Papers 2006/20, Department of Business and Management Science, Norwegian School of Economics.
    5. 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.
    6. Kaas, Rob & Dhaene, Jan & Goovaerts, Marc J., 2000. "Upper and lower bounds for sums of random variables," Insurance: Mathematics and Economics, Elsevier, vol. 27(2), pages 151-168, October.
    7. Chen, X. & Deelstra, G. & Dhaene, J. & Vanmaele, M., 2008. "Static super-replicating strategies for a class of exotic options," Insurance: Mathematics and Economics, Elsevier, vol. 42(3), pages 1067-1085, June.
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