Acta Informatica

, Volume 44, Issue 1, pp 23–39 | Cite as

An exact subexponential-time lattice algorithm for Asian options

Original Article
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Abstract

Asian options are popular financial derivative securities. Unfortunately, no exact pricing formulas exist for their price under continuous-time models. Asian options can also be priced on the lattice, which is a discretized version of the continuous- time model. But only exponential-time algorithms exist if the options are priced on the lattice without approximations. Although efficient approximation methods are available, they lack accuracy guarantees in general. This paper proposes a novel lattice structure for pricing Asian options. The resulting pricing algorithm is exact (i.e., without approximations), converges to the value under the continuous-time model, and runs in subexponential time. This is the first exact, convergent lattice algorithm to break the long-standing exponential-time barrier.

Keywords

Stock Price Option Price Asian Option Exercise Price Price Algorithm 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.
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Copyright information

© Springer-Verlag 2006

Authors and Affiliations

  1. 1.Department of Information and Finance ManagementNational Chiao-Tung UniversityTaiwanRepublic of China
  2. 2.Department of Computer Science and Information Engineering and Department of FinanceNational Taiwan UniversityTaipeiTaiwan

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