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On approximating deep in-the-money Asian options under exponential Lévy processes

Authors


  • The author is thankful to the Editor and an anonymous referee for many helpful remarks and suggestions. However, he retains the responsibility for any errors.

Abstract

This note proposes a new approach of valuing deep in-the-money fixed strike and discretely monitoring arithmetic Asian options. This new approach prices Asian options whose underlying asset price evolves according to the exponential of a Lévy process as a weighted sum of European options. Numerical results from experimenting on three different types of Lévy processes—a diffusion process, a jump diffusion process, and a pure jump process—illustrate the accuracy of the approach. © 2010 Wiley Periodicals, Inc. Jrl Fut Mark

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