Commun. Korean Math. Soc. 2013; 28(2): 397-406
Printed April 1, 2013
https://doi.org/10.4134/CKMS.2013.28.2.397
Copyright © The Korean Mathematical Society.
Kyoung-Sook Moon and Hongjoong Kim
Gachon University, Korea University
We present an improved binomial method for pricing Euro-pean- and American-type Asian options based on the arithmetic average of the prices of the underlying asset. At each node of the tree we propose a simple algorithm to choose the representative averages among all the effective averages. Then the backward valuation process and the interpolation are performed to compute the price of the option. The simulation results for European and American Asian options show that the proposed method gives much more accurate price than other recent lattice methods with less computational effort.
Keywords: option pricing, binomial method, Asian option, American options
2008; 23(1): 141-151
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