Pricing Asian Options Using Path Bundling

50 Pages Posted: 27 Sep 2001

See all articles by Edwin H. Neave

Edwin H. Neave

Queen's University - Smith School of Business

George L. Ye

Beijing Institute of Technology at Zhuhai

Date Written: 2000

Abstract

This paper presents a new methodology to price European and American Asian options on a recombining binomial process. The method uses state descriptions for bundles of paths rather than for individual paths, thus reducing the amount of computation needed. Depending on the size of the problem and the availability of computational resources, our methods give either an exact solution or an approximate solution with upper and lower bounds on its error. In comparison to other approaches, our methods are both more nearly accurate and very fast.

Keywords: options pricing, Asian options, numerical methods

JEL Classification: G1

Suggested Citation

Neave, Edwin H. and Ye, George Longsen, Pricing Asian Options Using Path Bundling (2000). Available at SSRN: https://ssrn.com/abstract=284888 or http://dx.doi.org/10.2139/ssrn.284888

Edwin H. Neave

Queen's University - Smith School of Business ( email )

Smith School of Business - Queen's University
143 Union Street
Kingston, Ontario K7L 3N6
Canada
613-533-2348 (Phone)
613-533-2321 (Fax)

George Longsen Ye (Contact Author)

Beijing Institute of Technology at Zhuhai ( email )

6 Jinfeng Rd
Zhuhai, Guangdong 519088
China
+8618666930866 (Phone)

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