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Asian Options with Jumps

23 Pages Posted: 13 Nov 2015  

Marina Marena

University of Eastern Piedmont

Andrea Roncoroni

ESSEC Business School

Gianluca Fusai

Università del Piemonte Orientale Dipartimento di Studi per l'Economia e l'Impresa; Cass Business School, City University London

Date Written: October 10, 2013

Abstract

We derive a closed-form formula for the fair value of call and put options written on the arithmetic average of security prices driven by jump diffusion processes displaying (possibly periodical) trend, time varying volatility, and mean reversion. The model allows one for jointly fitting quoted futures curve and the time structure of spot price volatility. Our result extends the no-jump case put forward in [Fusai, G., Marena, M., Roncoroni, A. 2008. Analytical Pricing of Discretely Monitored Asian-Style Options: Theory and Application to Commodity Markets. Journal of Banking and Finance 32 (10), 2033-2045]. A few tests based on commodity price data assess the importance of introducing a jump component on the resulting option prices.

Keywords: Asian-style options, Price models with jumps, Transform methods, Com- modity markets, Energy markets

JEL Classification: C63, G13

Suggested Citation

Marena, Marina and Roncoroni, Andrea and Fusai, Gianluca, Asian Options with Jumps (October 10, 2013). Available at SSRN: https://ssrn.com/abstract=2689122 or http://dx.doi.org/10.2139/ssrn.2689122

Marina Marena

University of Eastern Piedmont ( email )

Corso Borsalino 50
Department of Economics and Quantitative Methods
15100 Alessandria
Italy
+39 011 6706275 (Phone)

Andrea Roncoroni (Contact Author)

ESSEC Business School ( email )

Avenue Bernard Hirsch BP 50105
Cergy-Pontoise, 95021
France
+33 (0)1 34 43 32 39 (Phone)
+33 (0)1 34 43 30 01 (Fax)

HOME PAGE: http://www45.essec.edu/faculty/andrea-roncoroni

Gianluca Fusai

Università del Piemonte Orientale Dipartimento di Studi per l'Economia e l'Impresa ( email )

Via Perrone, 18
Novara, 28100
Italy

HOME PAGE: http://https://upobook.uniupo.it/gianluca.fusai

Cass Business School, City University London ( email )

106 Bunhill Row
London, EC2Y 8HB
Great Britain

HOME PAGE: http:// www.cass.city.ac.uk/experts/G.Fusai

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