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Two efficient parameterized boundaries for Večeř’s Asian option pricing PDE

Two efficient parameterized boundaries for Večeř’s Asian option pricing PDE In this paper, we derive two general parameterized boundaries of finite difference scheme for Večeř’s PDE which is used to price both fixed and floating strike Asian options. Using these two boundaries, we can deal with all kinds of situations, especially, some extreme cases, like overhigh volatility, very small volatility, etc, under which the Asian option is usually mispriced in many existing numerical methods. Numerical results show that our boundaries are pretty efficient. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Acta Mathematicae Applicatae Sinica Springer Journals

Two efficient parameterized boundaries for Večeř’s Asian option pricing PDE

Acta Mathematicae Applicatae Sinica , Volume 28 (4) – Nov 21, 2012

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Publisher
Springer Journals
Copyright
Copyright © 2012 by Institute of Applied Mathematics, Academy of Mathematics and System Sciences, Chinese Academy of Sciences and Springer-Verlag Berlin Heidelberg
Subject
Mathematics; Applications of Mathematics; Theoretical, Mathematical and Computational Physics; Math Applications in Computer Science
ISSN
0168-9673
eISSN
1618-3932
DOI
10.1007/s10255-012-0179-x
Publisher site
See Article on Publisher Site

Abstract

In this paper, we derive two general parameterized boundaries of finite difference scheme for Večeř’s PDE which is used to price both fixed and floating strike Asian options. Using these two boundaries, we can deal with all kinds of situations, especially, some extreme cases, like overhigh volatility, very small volatility, etc, under which the Asian option is usually mispriced in many existing numerical methods. Numerical results show that our boundaries are pretty efficient.

Journal

Acta Mathematicae Applicatae SinicaSpringer Journals

Published: Nov 21, 2012

References