Annals of Operations Research

, Volume 45, Issue 1, pp 131–145 | Cite as

Approximate valuation of average options

  • Hideki Iwaki
  • Masaaki Kijima
  • Toshihiro Yoshida


This paper concerns the valuation of average options of European type where an investor has the right to buy the average of an asset price process over some time interval, as the terminal price, at a prespecified exercise price. A discrete model is first constructed and a recurrence formula is derived for the exact price of the discrete average call option. For the continuous average call option price, we derive some approximations and theoretical upper and lower bounds. These approximations are shown to be very accurate for at-the-money and in-the-money cases compared to the simulation results. The theoretical bounds can be used to provide useful information in pricing average options.


Average (Asian) option discrete model Black-Scholes equation option pricing 


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Copyright information

© J.C. Baltzer AG, Science Publishers 1993

Authors and Affiliations

  • Hideki Iwaki
    • 1
  • Masaaki Kijima
    • 2
  • Toshihiro Yoshida
    • 3
  1. 1.Graduate School of CommerceHitotsubashi UniversityKunitachi-city, TokyoJapan
  2. 2.Graduate School of Systems ManagementThe University of TsukubaTokyoJapan
  3. 3.Salomon Brothers Asia LimitedTokyoJapan

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