Hostname: page-component-586b7cd67f-rdxmf Total loading time: 0 Render date: 2024-11-23T05:15:14.752Z Has data issue: false hasContentIssue false
  • English
  • Français

On the Hedging Portfolio of Asian Options

Published online by Cambridge University Press:  29 August 2014

Michel Jacques
Michel Jacques*
Affiliation:
École d'actuariat, Université Laval
*
École d'actuariat, Université Laval Québec, CanadaG1K 7P4, [email protected]
Rights & Permissions [Opens in a new window]

Abstract

Core share and HTML view are not available for this content. However, as you have access to this content, a full PDF is available via the ‘Save PDF’ action button.

We give 2 explicit formulae for the hedging portfolio of Asian options. One is based on the usual Lognormal approximation, and the other on an Inverse Gaussian approximation. Both give excellent results as replicating strategies when the parameters of the model are in a reasonable range.

Keywords

Option pricing theoryAsian optionreplicating strategyhedging portfolio
Type
Articles
Information
ASTIN Bulletin: The Journal of the IAA , Volume 26 , Issue 2 , November 1996 , pp. 165 - 183
Copyright
Copyright © International Actuarial Association 1996

References

Bergman, Yaakov Z. (1985) “Pricing Path Contingent Claims”. Research in Finance 5, 229–241.Google Scholar
Bowers, N. L., Gerber, H. U., Hickman, J. C., Jones, D. A., Andnesbitt, C. J. (1986) Actuarial Mathematics. Society of Actuaries.Google Scholar
Geman, Helyette and Yor, Marc (1993) “Bessel Processes, Asian Options, and Perpetuities”. Mathematical Finance 3, 349–375.CrossRefGoogle Scholar
Harrison, J. M. and Kreps, D. M. (1979) “Martingales and arbitrage in multiperiod securities markets”. Journal of Economie Theory 20, 381–408.CrossRefGoogle Scholar
Harrison, J. M. and Pliska, S. (1981) “Martingales and stochastic integrals in the theory of continuous trading”. Stochastic Processes and Their Applications 11, 215–260.CrossRefGoogle Scholar
Hogg, R. V. and Klugman, S.A. (1984) Loss Distributions. Wiley.CrossRefGoogle Scholar
Johnson, Norman L. and Kotz, Samuel (1970) Distributions in Statistics: Continuous Univariate Distributions-I. Wiley.Google Scholar
Kemna, A. G. Z. and Vorst, A. C. F. (1990) “A pricing method for options based on average asset value”. Journal of Banking and Finance 14, 113–129.CrossRefGoogle Scholar
Levy, Edmond (1992) “Pricing European average rate currency options”. Journal of International Money and Finance 11, 474–491.CrossRefGoogle Scholar
Resnick, Stanley (1992) Adventures in Stochastic Processes. Birkhäuser.Google Scholar
Turnbull, S. M. and Wakeman, L. M. (1991) “A Quick Algorithm for Pricing European Average Options”. Journal of Financial and Quantitative Analysis 26, 377–389.CrossRefGoogle Scholar
Vorst, Ton (1992) “Prices and Hedge Ratios of Average Exchange Rate Options”. International Review of Financial Analysis 1, 179–193.CrossRefGoogle Scholar