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Bounds for Asian basket options
| Content Provider | Semantic Scholar |
|---|---|
| Author | Deelstra, Griselda Diallo, Ibrahima Vanmaele, Michèle |
| Copyright Year | 2008 |
| Abstract | In this paper we propose pricing bounds for European-style discrete arithmetic Asian basket options in a Black and Scholes framework. We start from methods used for basket options and Asian options. First, we use the general approach for deriving upper and lower bounds for stop-loss premia of sums of non-independent random variables as in Kaas et al. [Upper and lower bounds for sums of random variables, Insurance Math. Econom. 27 (2000) 151-168] or Dhaene et al. [The concept of comonotonicity in actuarial science and finance: theory, Insurance Math. Econom. 31(1) (2002) 3-33]. We generalize the methods in Deelstra et al. [Pricing of arithmetic basket options by conditioning, Insurance Math. Econom. 34 (2004) 55-57] and Vanmaele et al. [Bounds for the price of discrete sampled arithmetic Asian options, J. Comput. Appl. Math. 185(1) (2006) 51-90]. Afterwards we show how to derive an analytical closed-form expression for a lower bound in the non-comonotonic case. Finally, we derive upper bounds for Asian basket options by applying techniques as in Thompson [Fast narrow bounds on the value of Asian options, Working Paper, University of Cambridge, 1999] and Lord [Partially exact and bounded approximations for arithmetic Asian options, J. Comput. Finance 10 (2) (2006) 1-52]. Numerical results are included and on the basis of our numerical tests, we explain which method we recommend depending on moneyness and time-to-maturity. |
| Starting Page | 215 |
| Ending Page | 228 |
| Page Count | 14 |
| File Format | PDF HTM / HTML |
| DOI | 10.1016/j.cam.2006.12.017 |
| Volume Number | 218 |
| Alternate Webpage(s) | http://homepages.ulb.ac.be/~grdeelst/DDV.pdf |
| Alternate Webpage(s) | https://doi.org/10.1016/j.cam.2006.12.017 |
| Language | English |
| Access Restriction | Open |
| Content Type | Text |
| Resource Type | Article |
