DG method for numerical pricing of two-asset European style Asian options with fixed strike

Result code in IS VaVaI

<a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F61989100%3A27510%2F17%3A10236820" target="_blank" >RIV/61989100:27510/17:10236820 - isvavai.cz</a>

Result on the web

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DOI - Digital Object Identifier

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Result language

angličtina

Original language name

DG method for numerical pricing of two-asset European style Asian options with fixed strike

Original language description

The evaluation of option premium is a very delicate issue arising from the assumptions made under a financial market model, and pricing of a wide range of options is generally feasible only when numerical methods are involved. This paper is based on our recent research on numerical pricing of path-dependent multi-asset options and ex- tends these results also to the case of Asian options with fixed strike. First, we recall the three-dimensional backward parabolic PDE describing the evolution of European-style Asian option contracts on two assets, whose payoff depends on the difference of the strike price and the average value of the basket of two underlying assets during the life of the option. Further, a suitable transformation of variables respecting this complex form of a payoff function reduces the problem to a two-dimensional equation belonging to the class of convection-diffusion problems and the discontinuous Galerkin (DG) method is applied to it in order to utilize its solving potentials. The whole procedure is accompanied with theoretical results and differences to the floating strike case are discussed. Finally, reference numerical experiments on real market data illustrate comprehensive empirical findings on Asian options.

Czech name

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Czech description

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Type

J_imp - Article in a specialist periodical, which is included in the Web of Science database

CEP classification

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OECD FORD branch

50202 - Applied Economics, Econometrics

Project

<a href="/en/project/GA16-09541S" target="_blank" >GA16-09541S: Robust numerical schemes for pricing of selected options under various market conditions</a><br>

Continuities

P - Projekt vyzkumu a vyvoje financovany z verejnych zdroju (s odkazem do CEP)

Publication year

2017

Confidentiality

S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů

Name of the periodical

Applications of Mathematics

ISSN

0862-7940

e-ISSN

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Volume of the periodical

62

Issue of the periodical within the volume

6

Country of publishing house

CZ - CZECH REPUBLIC

Number of pages

26

Pages from-to

607-632

UT code for WoS article

000419946700005

EID of the result in the Scopus database

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