Evaluation Of Asian Option By Using RBF
Approximation
Author(s)
E. Kita, Y. Goto, F. Zhai & K. Shen
Abstract
This paper describes the evaluation of the price of the Asian option by using the
radial bases function (RBF) approximation. In the previous study, we described
the evaluationmethod of the European and the American options. In this paper, the
Asian option is considered. A governing differential equation is discretized with
the Crank-Nicholson scheme and the RBF approximation. The system of equations
is solved for the option price. The numerical results are compared with the FDM
solutions in order to confirm the validity of the formulation.
1 Introduction
Recently, financial derivatives have been widely used and their importance has
increased. The importance of the derivative transaction is increasing for the adequate
sharing of the financial risk. The option transaction is one of the most important
financial derivatives and therefore, several schemes have been presented by
many researchers for their pricing [1, 2].
Several financial options have been developed; the European option, American
option, Look-Back option, Exotic option and so on. In previous studies, the authors
described the pricing of the European and American options [3, 4]. The Asian
option will be considered in this paper. In the Asian option, the payoff is performed
according to the time-average value of the asset price. The Asian option can be
classified into the average rate option, the average strike option and so on.While, in
the former, the payoff depends on the difference between the time-average value of
the asset of the asset price and the expiration price, in the latter, the payoff depends
on the difference between the average value and the asset price on an expiration
date. In this paper, we focused on the average strike option.
Keywords
Related Book
Other papers in this volume
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