Article ID Journal Published Year Pages File Type
4628351 Applied Mathematics and Computation 2014 12 Pages PDF
Abstract

We consider the problem of pricing arithmetic Asian options in the presence of stochastic volatility. By performing a change of numeraire introduced by Vĕcĕr, we derive a partial integro-differential equation (PIDE) for Asian options within Barndorff-Nielsen and Shephard (BNS) model framework. Then, a finite difference discretization is proposed for dealing with the terms containing the partial derivatives and a simple trapezoidal rule is used for the integral term due to jumps. Numerical experiments confirm that the developed methods are very efficient.

Related Topics
Physical Sciences and Engineering Mathematics Applied Mathematics
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