A closed-form approximation for pricing geometric Istanbul options
The Istanbul options were first introduced by Michel Jacques in 1997. These derivatives are considered as an extension of the Asian options. In this paper, we propose an analytical approximation formula for a geometric Istanbul call option (GIC) under the Black-Scholes model. Our approximate pricing formula is obtained in closed-form using a second-order Taylor expansion. We compare our theoretical results with those of Monte-Carlo simulations using the control variates method. Finally, we study the effects of changes in the price of the underlying asset on the value of GIC.
- Pub Date:
- March 2021
- Quantitative Finance - Pricing of Securities
- This version of the paper was submitted to the journal Statistics and Probability Letters on 3 March 2020