Moment-Matching Approximations for Asian Options

Autor:	Min-Teh Yu, Chien-Ling Lo, Kenneth J. Palmer
Rok vydání:	2014
Předmět:	Moment (mathematics) Economics and Econometrics Matching (statistics) Log-normal distribution Econometrics Gamma distribution Asian option Valuation (measure theory) Random variable Finance Reciprocal Mathematics
Zdroj:	The Journal of Derivatives. 21:103-122
ISSN:	2168-8524 1074-1240
DOI:	10.3905/jod.2014.21.4.103
Popis:	One of the most common kind of option with nonstandard exercise styles is the Asian option. There are several variants, but they all have payoffs based on the average price of the underlying asset over some portion of the option’s lifetime. This presents a problem for valuation because the distribution of the average of lognormal random variables is not lognormal. Many different ways have been proposed to approximate the distribution, often by finding another distribution with the same moments. The lognormal is a popular choice, but it is not necessarily accurate. In addition, for some types of Asian contracts, the moments are not easy to obtain. In this article, the authors develop a general procedure for obtaining the necessary moments for Asian contracts and fit them to a shifted reciprocal gamma distribution. Comparisons against standard and shifted versions of normal, lognormal, and (nonshifted) reciprocal gamma densities show that the approach is fast and, in general, much more accurate than the others.
Databáze:	OpenAIRE
Externí odkaz:	https://explore.openaire.eu/search/publication?articleId=doi_________::e0ccd7119dfa4a7c9c7bbb3da96a1615 https://doi.org/10.3905/jod.2014.21.4.103 Zobrazit plný text záznamu