The Distribution of the Average of Log-Normal Variables and Exact Pricing of the Arithmetic Asian Options: A Simple, Closed-Form Formula
8 Pages Posted: 25 Sep 2019 Last revised: 20 Nov 2019
Date Written: September 16, 2019
We introduce a simple, exact and closed-form formula for pricing the arithmetic Asian options. The pricing formula is as simple as the classical Black-Scholes formula. In doing so, we show the distribution of the continuous average of log-normal variables is log-normal.
Keywords: distribution of the arithmetic average of log-normal variables, Arithmetic Asian option pricing, arithmetic average of the price, average of log-normal, Black-Scholes formula
JEL Classification: C5, C0, G0
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