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Gerhard Larcher, Martin Predota, Robert F. Tichy

Arithmetic average options in the hyperbolic model

Keywords: Asian option, hyperbolic distribution, Quasi-Monte Carlo methods, Esscher transform

In this paper, we present a strategy for pricing discrete Asian options, i.e. for options whose payoff depends on the average price of the underlying asset where the average is extended over a fixed period up to the maturity date. Following a recent development in Mathematical Finance (cf. Eberlein, E., Keller, U. and Prause, K. (1998) New insights into smile, mispricing and value at risk: the hyperbolic model, Journal of Business, 71, 371–405), we assume that the log returns of the asset are hyperbolically distributed.

Monte Carlo Methods and Applications, Walter de Gruyter

Print ISSN: 0929-9629
Volume: 9, 09/2003
Pages: 227 - 239

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