Abstract
This paper presents simple and fast algorithms for computing very tight upper and lower bounds on the prices of American Asian options in the binomial model. The authors choose two types sets of the actual arithmetic average prices, instead of the simulated values in other existing models, as the representative average prices at each node of the binomial tree. This approach simplifies effectively the computation and reduces the error caused by the linear interpolation. Numerical results show that the approach produces accurate upper and lower bounds compared to the other existing methods based on the binomial tree.
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This work was partially supported by China Postdoctoral Science Foundation under Grant No. 2012M510377, National Natural Science Foundation of China under Grant Nos. 71373043, 71331006, and 71171119, the National Social Science Foundation of China under Grant No. 11AZD010, and Program for New Century Excellent Talents in University under Grant No. NCET-10-0337 and Program for Excellent Talents, UIBE.
This paper was recommended for publication by Editor WANG Shouyang.
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Liu, J., Wu, W., Xu, J. et al. An accurate binomial model for pricing American Asian option. J Syst Sci Complex 27, 993–1007 (2014). https://doi.org/10.1007/s11424-014-3271-x
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DOI: https://doi.org/10.1007/s11424-014-3271-x