Discrete Asian Call Option Price

Posted by Chun-Yuan Chiu

Input:
Initial underlying asset price
Strike price
Time to maturity Years
Risk free interest rate (annulized)
Volatility (annulized)
Number of partitions
Output:
Call value

The Turnbull-Wakeman approximation for Asian options. The price of an Asian option depends on the average price of the underlying asset, whose density function is not known analytically under the Black-Scholes model, but fortunately its moments are. With the first few moments and the Edgeworth expansion one can obtain an approximation of the density function, and hence the option price.

Tagged: Asian Option, Moments Methods, Turnbull-Wakeman Approximation

 •  Dec 7, 2013  • 

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