A P.D.E. Approach to Asian Options: Analytical and Numerical Evidence
We first derive a one state variable partial differential equation, easy to emplement, which characterizes the price of a European type Asian option. This result is explained and related to previous literature. When we derive new results on the hedging of an Asian option and propose analytical and numerical analysis on the comparison between Asian and European options. Our methodology which applies to "fixed-strike" Asian options as well to "floating-strike" Asian options completes and clarifies various results in the literature. In this paper we focus on "backward-starting" Asian options. Our approach is quite general however, and we explain how to adapt our main results to the case of "forward-starting" Asian options.
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|Date of creation:||1996|
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- repec:crs:wpaper:9338 is not listed on IDEAS
- Isabelle Bajeux-Besnainou & Jean-Charles Rochet, 1996.
"Dynamic Spanning: Are Options An Appropriate Instrument?,"
Wiley Blackwell, vol. 6(1), pages 1-16.
- Bajeux, I. & Rochet, J.C., 1994. "Dynamic Spanning: Are Options an Appropriate Instrument?," Papers 94.329, Toulouse - GREMAQ.
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- Courtadon, Georges, 1982. "The Pricing of Options on Default-Free Bonds," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 17(01), pages 75-100, March.
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