Pricing Exchange Rate-Linked Asian Options by the Reciprocal Gamma Distribution Method
Date Issued
2008
Date
2008
Author(s)
Chen, Chia-Lung
Abstract
In recent years, there has been a lot of research on the pricing of Asian options. Examples include analytic approximation formulas and the binomial option pricing model. Milevsky and Posner (1998) give a closed-form analytic approximation expression for the value of the Asian option with the reciprocal gamma distributions. In this thesis we extend the approximation formulas of Milevsky and Posner to value two types of exchange rate-linked Asian options. To assess the accuracy of the resulting prices, we use Monte Carlo simulation to establish the benchmarks. These simulations show that the proposed solution is fairly accurate.
Subjects
reciprocal gamma distributions
exchange rate Asian options
Monte Carlo simulation
Type
thesis
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ntu-97-R93723092-1.pdf
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