Comparison Of Radial Basis Functions In
Evaluating The Asian Option
Author(s)
F. Zhai, K. Shen & E. Kita
Abstract
Some researchers have presented the application of radial basis function
approximation to the evaluation of option contracts.
In a previous study, the authors described the evaluation of Asian options by
using radial basis function approximation. The numerical results indicated that the
computational accuracy depended on the radial basis function and the reciprocal
multi-quadric function was better than the multi-quadric one.
So, in this study, some radial basis functions are applied to the evaluation of the
Asian option of one asset. We compare the multi-quadric, the reciprocal multiquadric,
and Gaussian functions. The results show that the reciprocal multiquadric
function and Gaussian function give better numerical results and the
reciprocal multi-quadric function is better than the others.
1 Introduction
Recently, the financial derivatives are dealt widely and the importance is expanded.
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; European option, American
option, Look-Back option, Exotic option and so on. In the previous study [3], the
authors described the formulation for evaluation of the Asian option. The results
showed that the computational accuracy of the present algorithm depended on the
radial basis function to be employed for the evaluation. In this study, three kinds
of the radial basis functions are applied for evaluation of Asian option and then,
the computational accuracy and cost are compared.
Keywords
Related Book
Other papers in this volume
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