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The method and characteristics of several approaches to the pricing ofdiscretely monitored arithmetic Asian options on stocks with discrete, absolutedividends are described. The contrast between method behaviors for options withan Asian tail and those with monitoring throughout their lifespan isemphasized. Rates of convergence are confirmed, but greater focus is put onactual performance in regions of accuracy which are realistic for use bypractitioners. A hybrid approach combining Curran's analytical approximationwith a two-dimensional finite difference method is examined with respect to theerrors caused by the approximating assumptions. For Asian tails of equidistantmonitoring dates, this method performs very well, but as the scenario deviatesfrom the method's ideal conditions, the errors in the approximation growunfeasible. For general monitoring straightforward solution of the fullthree-dimensional partial differential equation by finite differences is highlyaccurate but suffers from rapid degradation in performance as the monitoringinterval increases. For options with long monitoring intervals a randomizedquasi-Monte Carlo method with control variate variance reduction stands out asa powerful alternative.

Approaches to Asian Option Pricing with Discrete Dividends