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Accurate closed‐form approximation for pricing Asian and basket options
Author(s) -
Zhou Jinke,
Wang Xiaolu
Publication year - 2008
Publication title -
applied stochastic models in business and industry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.413
H-Index - 40
eISSN - 1526-4025
pISSN - 1524-1904
DOI - 10.1002/asmb.714
Subject(s) - skew , asian option , simplicity , distribution (mathematics) , mathematics , mathematical economics , valuation of options , mathematical optimization , computer science , econometrics , mathematical analysis , physics , telecommunications , quantum mechanics
By approximating the distribution of the sum of correlated lognormals with some log‐extended‐skew‐normal distribution, we present closed‐form approximation formulae for pricing both Asian and basket options. Numerical comparison shows that our formulae provide both computational simplicity and accuracy. Copyright © 2008 John Wiley & Sons, Ltd.