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Pricing Asian Options using Moment Matching on a Multinomial Lattice
Mälardalen University, School of Education, Culture and Communication, Educational Sciences and Mathematics. (Mathematics and Applied Mathematics)
Mälardalen University, School of Education, Culture and Communication, Educational Sciences and Mathematics. (Mathematics and Applied Mathematics)ORCID iD: 0000-0003-3204-617X
Mälardalen University, School of Education, Culture and Communication, Educational Sciences and Mathematics. (Mathematics and Applied Mathematics)ORCID iD: 0000-0003-4554-6528
University of Nairobi, Kenya. (School of Mathematics)
2014 (English)In: 10TH INTERNATIONAL CONFERENCE ON MATHEMATICAL PROBLEMS IN ENGINEERING, AEROSPACE AND SCIENCES: ICNPAA 2014 Conference date: 15–18 July 2014 Location: Narvik, Norway ISBN: 978-0-7354-1276-7 Editor: Seenith Sivasundaram Volume number: 1637 Published: 10 december 2014 / [ed] Seenith Sivasundaram, 2014, 759-765 p.Conference paper, Published paper (Refereed)
Abstract [en]

Pricing Asian options is often done using bi- or trinomial lattice methods. Here some results for generalizing these methods to lattices with more nodes are presented. We consider Asian option pricing on a lattice where the underlying asset follows Merton–Bates jump-diffusion model and describe the construction of a lattice using the moment matching technique which results in an equation system described by a rectangular Vandermonde matrix. The system is solved using the explicit expression for the inverse of the Vandermonde matrix and some restrictions on the jump sizes of the lattice and the distribution of moments are identified. The consequences of these restrictions for the suitability of the multinomial lattice methods are also discussed.

Place, publisher, year, edition, pages
2014. 759-765 p.
Keyword [en]
Jump-diffusion process, lattices, Vandermonde matrix, Asian options, option pricing
National Category
Mathematics Probability Theory and Statistics
Research subject
Mathematics/Applied Mathematics
Identifiers
URN: urn:nbn:se:mdh:diva-27256DOI: 10.1063/1.4904648ISI: 000347812200091ISBN: 978-0-7354-1276-7 (print)OAI: oai:DiVA.org:mdh-27256DiVA: diva2:775313
Conference
10TH INTERNATIONAL CONFERENCE ON MATHEMATICAL PROBLEMS IN ENGINEERING, AEROSPACE AND SCIENCES: ICNPAA 2014 Conference date: 15–18 July 2014 Location: Narvik, Norway
Available from: 2014-12-31 Created: 2014-12-31 Last updated: 2015-07-15Bibliographically approved

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CiteExportLink to record
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Citation style
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