Pricing arithmetic Asian options under jump diffusion CIR processes

Jong Jun Park, Hyun Jin Jang, Jiwook Jang

Research output: Contribution to journalArticlepeer-review

Abstract

We compute analytical formulae for pricing arithmetic Asian options under jump diffusion CIR processes. To derive the solution, we employ a characteristic function of the underlying asset price process and its integrated process that is not required to take the inversion Fourier or Laplace transform. We conduct numerical tests for validation of proposed formulae to confirm that they provide stable and accurate option prices with much faster computation time than the full Monte Carlo method.

Original languageEnglish
Article number101269
Pages (from-to)1-8
Number of pages8
JournalFinance Research Letters
Volume34
Early online date20 Aug 2019
DOIs
Publication statusPublished - May 2020

Keywords

  • Arithmetic Asian options
  • Characteristic functions
  • Joint Fourier and Laplace transforms
  • Jump diffusion CIR processes

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