Journal of Computational Finance

Risk.net

A new PDE approach for pricing arithmetic average Asian options

Jan Vecer

ABSTRACT

In this paper, arithmetic average Asian options are studied. It is observed that the Asian option is a special case of the option on a traded account. The price of the Asian option is characterized by a simple one-dimensional partial differential equation which could be applied to both continuous and discrete average Asian options. the paper also provides numerical implementation of the pricing equation. The implementation is fast and accurate even for low-volatility and/or short-maturity cases.

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