Pricing Asian Options with Correlators
Abstract
We derive a series expansion by Hermite polynomials for the price of an arithmetic Asian option. This series requires the computation of moments and correlators of the underlying price process, but for a polynomial jumpdiffusion, these are given in closed form, hence no numerical simulation is required to evaluate the series. This allows, for example, for the explicit computation of Greeks. The weight function defining the Hermite polynomials is a Gaussian density with scale $b$. We find that the rate of convergence for the series depends on $b$, for which we prove a lower bound to guarantee convergence. Numerical examples show that the series expansion is accurate but unstable for initial values of the underlying process far from zero, mainly due to rounding errors.
 Publication:

arXiv eprints
 Pub Date:
 April 2021
 arXiv:
 arXiv:2104.11684
 Bibcode:
 2021arXiv210411684L
 Keywords:

 Quantitative Finance  Pricing of Securities;
 Quantitative Finance  Computational Finance