Pricing Asian Options for Jump Diffusions

Details Pricing Asian Options for Jump Diffusions Pricing Asian Options for Jump Diffusions

2007-07-17

arxiv.org/abs/0707.2432v7

Computer Science

Computational Engineering, Finance, and Science

Key Words: Pricing Asian Options, Jump diffusions, an Iterative Numerical Scheme, Classical Solutions of Integro-PDEs

Scientific paper

We construct a sequence of functions that uniformly converge (on compact sets) to the price of Asian option, which is written on a stock whose dynamics follows a jump diffusion, exponentially fast. Each of the element in this sequence solves a parabolic partial differen- tial equation (not an integro-differential equation). As a result we obtain a fast numerical approximation scheme whose accuracy versus speed characteristics can be controlled. We analyze the performance of our numerical algorithm on several examples.

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