Two Essays on Asian Option Valuation with Higher Moments in the Underlying Distribution
| Autor: | Ming-Feng Hsu, 許明峰 |
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| Rok vydání: | 2007 |
| Druh dokumentu: | 學位論文 ; thesis |
| Popis: | 96 The purpose of this study is to develop a numerical valuation model for Asian options while considering the higher moments of the underlying asset return distribution. Two issues are analyzed in the dissertation. First one discusses the pricing of European Asian options, and the second one extends the enquiry to American Asian options. We first apply the Edgeworth binomial model with the lower and upper bounds to calculate the European Asian options. The error bound in our pricing from the Edgeworth binomial model is smaller than that from Chalasani et al. (1998). This method is then used to price the average rate currency options with different skewness and kurtosis. The numerical results show that our approach can effectively deal with the higher moments of the underlying distribution and provide better estimates of option value compared to various studies in literature. We then develop a modified Edgeworth binomial model with higher moment consideration to price American Asian options. With lognormal underlying distribution for benchmark comparison, our algorithm is as precise as that of Chalasani et al. (1999), especially when the number of the time steps increases. If the underlying distribution displays negative skewness and leptokurtosis as often observed for stock index returns, our estimates are better than those in Chalasani et al. (1999) and very similar to the benchmarks in Hull and White (1993). The numerical analysis shows that our modified Edgeworth binomial models can quickly and accurately value American Asian options with higher moments in their underlying distribution. |
| Databáze: | Networked Digital Library of Theses & Dissertations |
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