The Pricing of Asian Options in Uncertain Volatility Model | Zendy

Yulian Fan | Zendy; Huadong Zhang | Zendy

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The Pricing of Asian Options in Uncertain Volatility Model

Author(s) -

Yulian Fan,

Huadong Zhang

Publication year - 2014

Publication title -

mathematical problems in engineering

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 0.262

H-Index - 62

eISSN - 1026-7077

pISSN - 1024-123X

DOI - 10.1155/2014/786391

Subject(s) - nonlinear system , volatility (finance) , computation , asian option , mathematics , dimension (graph theory) , mathematical optimization , econometrics , valuation of options , algorithm , pure mathematics , physics , quantum mechanics

This paper studies the pricing of Asian options when the volatility of the underlyingasset is uncertain. We use the nonlinear Feynman-Kac formula in the G-expectation theoryto get the two-dimensional nonlinear PDEs. For the arithmetic average fixed strike Asianoptions, the nonlinear PDEs can be transferred to linear PDEs. For the arithmetic averagefloating strike Asian options, we use a dimension reduction technique to transfer the two-dimensionalnonlinear PDEs to one-dimensional nonlinear PDEs. Then we introduce theapplicable numerical computation methods for these two classes of PDEs and analyze theperformance of the numerical algorithms

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