https://scholars.lib.ntu.edu.tw/handle/123456789/115484
標題: | An efficient convergent lattice algorithm for european asian options | 作者: | Dai, Tian-Shyr Huang, Guan-Shieng Lyuu, Yuh-Dauh |
關鍵字: | Option pricing;Lattice;Path-dependent derivative;Asian option;Approximation alg- orithm;Lagrange multiplier | 公開日期: | 2005 | 卷: | 169 | 期: | 2 | 起(迄)頁: | 1458-1471 | 來源出版物: | Applied Mathematics and Computation | 摘要: | Financial options whose payo ?depends critically on historical prices are called path- dependent options.Their prices are usually harder to calculate than options whose prices do not depend on past histories.Asian options are popular path-dependent derivatives, and it has been a long-standing problem to price them e ?ciently and accurately.No known exact pricing formulas are available to price them under the continuous-time Black –Scholes model.Although approximate pricing formulas exist,they lack accuracy guarantees.Asian options can be priced numerically on the lattice.A lattice divides the time to maturity into n equal-length time steps.The option price computed by the lattice converges to the option value under the Black –Scholes model as n !1 .Unfortunately, only subexponential-time algorithms are available if Asian options are to be priced on the lattice without approximations.E ?cient approximation algorithms are available for the lattice.The fastest lattice algorithm published in the literature runs in O(n 3.5 )-time, whereas for the related PDE method,the fastest one runs in O(n 3 )time.This paper pre- sents a new lattice algorithm that runs in O(n 2.5 )time,the best in the literature for such methods.Our algorithm exploits the method of Lagrange multipliers to minimize the approximation error.Numerical results verify its accuracy and the excellent performance. Financial options whose payoff depends critically on historical prices are called path-dependent options. Their prices are usually harder to calculate than options whose prices do not depend on past histories. Asian options are popular path-dependent derivatives, and it has been a long-standing problem to price them efficiently and accurately. No known exact pricing formulas are available to price them under the continuous-time Black-Scholes model. Although approximate pricing formulas exist, they lack accuracy guarantees. Asian options can be priced numerically on the lattice. A lattice divides the time to maturity into n equal-length time steps. The option price computed by the lattice converges to the option value under the Black-Scholes model as n → ∞. Unfortunately, only subexponential-time algorithms are available if Asian options are to be priced on the lattice without approximations. Efficient approximation algorithms are available for the lattice. The fastest lattice algorithm published in the literature runs in O(n3.5)-time, whereas for the related PDE method, the fastest one runs in O(n3) time. This paper presents a new lattice algorithm that runs in O(n2.5) time, the best in the literature for such methods. Our algorithm exploits the method of Lagrange multipliers to minimize the approximation error. Numerical results verify its accuracy and the excellent performance. © 2004 Elsevier Inc. All rights reserved. |
URI: | http://www.scopus.com/inward/record.url?eid=2-s2.0-25844467939&partnerID=MN8TOARS http://scholars.lib.ntu.edu.tw/handle/123456789/318164 http://ntur.lib.ntu.edu.tw/bitstream/246246/20060927122848148993/1/asian.pdf https://www.scopus.com/inward/record.uri?eid=2-s2.0-25844467939&doi=10.1016%2fj.amc.2004.10.085&partnerID=40&md5=f96ccdadffe3e21ed0bcd232f7c7c089 |
ISSN: | 00963003 | 其他識別: | 20060927122848148993 | SDG/關鍵字: | Approximation theory; Computational methods; Crystal lattices; Finance; Lagrange multipliers; Mathematical models; Approximation algorithms; Asian option; Lattice; Option pricing; Path-dependent derivatives; Algorithms |
顯示於: | 資訊工程學系 |
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