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

See all articles by Moawia Alghalith

Moawia Alghalith

University of the West Indies (UWI)

Date Written: September 16, 2019

Abstract

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

Suggested Citation

Alghalith, Moawia, The Distribution of the Average of Log-Normal Variables and Exact Pricing of the Arithmetic Asian Options: A Simple, Closed-Form Formula (September 16, 2019). Available at SSRN: https://ssrn.com/abstract=3454650 or http://dx.doi.org/10.2139/ssrn.3454650

Moawia Alghalith (Contact Author)

University of the West Indies (UWI) ( email )

Trinidad and Tobago

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