[go: up one dir, main page]
More Web Proxy on the site http://driver.im/ skip to main content
research-article

A robust numerical technique and its analysis for computing the price of an Asian option

Published: 15 December 2022 Publication History

Abstract

An efficient numerical scheme based on exponential B-spline (EBS) functions is developed in this work for numerical solution of Asian option pricing (AOP) problem and dealing with delta values. Convergence and stability of proposed scheme are investigated. Numerical illustrations are performed to demonstrate the efficiency and feasibility of the method and to corroborate the theoretical estimate as well. We examine the effects of volatilities, maturity time and interest rate on option price and delta values. It is shown that the present method for delta values is of second order accuracy in both the spatial and temporal domains. The computed option values are compared with those obtained in Dubois and Lelièvre (2004/2005), Večeř (2001), Zvan et al. (1998) and Thompson (1999). The computational time elapsed for the present method for different values of mesh points are provided. It is shown that the present numerical scheme is accurate for small and large volatilities.

References

[1]
Ingersoll J., Theory of Financial Decision Making, Roman & Littlefield, Totowa, New Jersey, 1987.
[2]
Wilmottm P., Dewynne J., Howison S., Option Pricing: Mathematical Models and Computation, Oxford Financial Press, Oxford,UK, 1993.
[3]
Rogers L.C.G., Shi Z., The value of an Asian option, J. Appl. Probab. 32 (1995) 1077–1088.
[4]
Geman H., Yor M., Bessel processes Asian options and perpetuities, Math. Finance 3 (1993) 349–375.
[5]
Kumar A., Tripathi L.P., Kadalbajoo M.K., A numerical study of Asian option with radial basis functions based finite differences method, Eng. Anal. Bound. Elem. 50 (2015) 1–7.
[6]
Cen Z., Xu A., Le A., A hybrid finite difference scheme for pricing Asian options, Appl. Math. Comput. 252 (2015) 229–239.
[7]
Dubois F., Lelièvre T., Efficient pricing of asian options by the PDE approach, J. Comput. Finance 8 (2004) 55–64.
[8]
Cen Z., Le A., Xu A., Finite difference scheme with a moving mesh for pricing Asian options, Appl. Math. Comput. 219 (2013) 8667–8675.
[9]
Mudzimbabwe W., Patidar K.C., Witbooi P.J., A reliable numerical method to price arithmetic Asian options, Appl. Math. Comput. 218 (2012) 10934–10942.
[10]
Hugger J., A fixed strike Asian option and comments on its numerical solution, ANZIAM J. 45 (2003) 215–231.
[11]
Kemna A.G.Z., Vorst A.C.F., A pricing method for options based on average asset values, J. Bank. Financ. 14 (1990) 113–129.
[12]
Lapeyre B., Temam E., Competitive Monte Carlo methods for the pricing of Asian options, J. Comput. Finance 5 (2001) 39–59.
[13]
Lax P.D., Richtmyer R.D., Survey of the stability of linear finite difference equations, Comm. Pure Appl. Math. 9 (1956) 267–293.
[14]
McCartin B.J., Theory of exponential splines, J. Approx. Theory 66 (1) (1991) 1–23.
[15]
Koch P.E., Lyche T., Exponential B-splines in tension, in: Approximation Theory VI, II, College Station, TX, 1989, Academic Press, Boston, MA, 1989, pp. 361–364.
[16]
Ryaben’kii V.S., Tsynkov S.V., A Theoretical Introduction to Numerical Analysis, Chapman and Hall/CRC, Boca Raton, 2006.
[17]
Rao S.C.S., Kumar M., Exponential B-spline collocation method for self-adjoint singularly perturbed boundary value problems, Appl. Numer. Math. 58 (2008) 1572–1581.
[18]
Henrici P., Discrete Variable Methods in Ordinary Differential Equations, John Wiley and Sons, New York, USA, 1962.
[19]
Večeř J., A new PDE approach for pricing arithmetic average Asian options, J. Comput. Finance 4 (2001) 105–113.
[20]
Zvan R., Forsyth P.A., Vetzal K., Robust numerical methods for PDE models of Asian options, J. Comput. Finance 2 (1998) 39–78.
[21]
Thompson G.W.P., Fast Narrow Bounds on the Value of Asian Options, Judge Institute of Management, University of Cambridge, Cambridge, UK, 1999.

Index Terms

  1. A robust numerical technique and its analysis for computing the price of an Asian option
                Index terms have been assigned to the content through auto-classification.

                Recommendations

                Comments

                Please enable JavaScript to view thecomments powered by Disqus.

                Information & Contributors

                Information

                Published In

                cover image Journal of Computational and Applied Mathematics
                Journal of Computational and Applied Mathematics  Volume 416, Issue C
                Dec 2022
                493 pages

                Publisher

                Elsevier Science Publishers B. V.

                Netherlands

                Publication History

                Published: 15 December 2022

                Author Tags

                1. 65L10
                2. 65L60
                3. 34B16

                Author Tags

                1. Asian option
                2. Exponential B-spline
                3. Delta value
                4. Stability
                5. Convergence

                Qualifiers

                • Research-article

                Contributors

                Other Metrics

                Bibliometrics & Citations

                Bibliometrics

                Article Metrics

                • 0
                  Total Citations
                • 0
                  Total Downloads
                • Downloads (Last 12 months)0
                • Downloads (Last 6 weeks)0
                Reflects downloads up to 22 Dec 2024

                Other Metrics

                Citations

                View Options

                View options

                Media

                Figures

                Other

                Tables

                Share

                Share

                Share this Publication link

                Share on social media