On the Equivalence of Floating and Fixed-Strike Asian Options
Journal of Applied Probability, Vol. 39, No. 2, pp. 391--394, 2002
LUMS Working Paper No. 2001/005
7 Pages Posted: 13 Dec 2001 Last revised: 9 Mar 2008
There are two types of Asian options in the financial markets which differ according to the role of the average price. We give a symmetry result between the floating and fixed-strike Asian options. The proof involves a change of numeraire and time reversal of Brownian motion. Symmetries are very useful in option valuation and in this case, the result allows the use of more established fixed-strike pricing methods to price floating-strike Asian options.
Keywords: Asian option, floating-strike Asian option, put call symmetry, change of numeraire, time reversal, Brownian motion
JEL Classification: AMS 2000 SC Primary: 60G44, Secondary: 91B28
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