Analytic Formula for Pricing Asian Options with Stochastic Volatility

• Main Authors: Jia-Chang Chang, 張家彰
• Other Authors: Chung-Gee Lin
• Format: Others
• Language: en_US
• Published: 2006
• Online Access: http://ndltd.ncl.edu.tw/handle/89467757986048360843

碩士 === 東吳大學 === 商用數學系 === 94 === Asian options are one of the most popular exotic options that traded extensively in the currency and interest rate derivatives markets. The traditional methods, such as Monte Carlo simulations, tree methods, etc., that were used for pricing Asian options are complex and time-consuming. Moreover, the hedge ratios of Asian options are difficult to calculate under the traditional numerical methods. This study derives the analytical solution for pricing Asian options and offers better solutions to derive the hedge ratios. In order to make the analytical solution practical, this article considers stochastic volatility of the underlying assets. From the numerical analyses, we show that the analytic formula for Asian options with stochastic volatility derived in this study is far more efficient than the alternative simulations.