Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5088967 | Journal of Banking & Finance | 2014 | 11 Pages |
Abstract
Empirical evidence indicates that commodity prices are mean reverting and exhibit jumps. As some commodity option payoffs involve the arithmetic average of historical commodity prices, we derive an analytical solution to arithmetic Asian options under a mean reverting jump diffusion process. The analytical solution is implemented with the fast Fourier transform based on the joint characteristic function of the terminal asset price and the realized average value. We also examine the accuracy and computational efficiency of the proposed method through numerical studies.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Shing Fung Chung, Hoi Ying Wong,