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Efficient Pricing of Discrete Arithmetic Asian Options Using Recombining Quadrature Methods
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Author: Haiyue Jin, Junjie Bai, Yicheng Hong, Xinmeng Wang
Abstract: The Asian option is one of the most frequently traded options. In the present paper we use four different recombining quadrature methods introduced by Hong et.al [6], which are a kind of recombining multinomial tree, to price a discretely monitored arithmetic Asian option. We compare these recombining multinomial tree methods with the existing trapezoidal and Simpson methods. We find that under the condition of the longer maturity, all four recom-bining methods outperform the compared methods in accuracy and convergence speed. But the interesting thing is that our four recombining quadratures methods do inferior to classic Trapezoidal method when the maturity is smaller.
Keywords: Option Pricing, Asian Options, Quadratures, Recombining Multinomial Tree
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