Bounds on prices for Asian options via Fourier methods

Scott Alexander*, Alexander Novikov, Nino Kordzakhia

*Corresponding author for this work

    Research output: Contribution to journalArticlepeer-review

    1 Citation (Scopus)


    The problem of pricing arithmetic Asian options is nontrivial, and has attracted much interest over the last two decades. This paper provides a method for calculating bounds on option prices and approximations to option deltas in a market where the underlying asset follows a geometric Lévy process. The core idea is to find a highly correlated, yet more tractable proxy to the event that the option finishes in-the-money. The paper provides a means for calculating the joint characteristic function of the underlying asset and proxy processes, and relies on Fourier methods to compute prices and deltas. Numerical studies show that the lower bound provides accurate approximations to prices and deltas, while the upper bound provides good though less accurate results.

    Original languageEnglish
    Pages (from-to)299-318
    Number of pages20
    JournalANZIAM Journal
    Issue number3
    Publication statusPublished - 1 Jan 2016


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