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http://dx.doi.org/10.12941/jksiam.2018.22.075

COMPARATIVE STUDY OF NUMERICAL ALGORITHMS FOR THE ARITHMETIC ASIAN OPTION  

WANG, JIAN (DEPARTMENT OF MATHEMATICS, KOREA UNIVERSITY)
BAN, JUNGYUP (DEPARTMENT OF FINANCIAL ENGINEERING, KOREA UNIVERSITY)
LEE, SEONGJIN (DEPARTMENT OF FINANCIAL ENGINEERING, KOREA UNIVERSITY)
YOO, CHANGWOO (DEPARTMENT OF FINANCIAL ENGINEERING, KOREA UNIVERSITY)
Publication Information
Journal of the Korean Society for Industrial and Applied Mathematics / v.22, no.1, 2018 , pp. 75-89 More about this Journal
Abstract
This paper presents the numerical valuation of the arithmetic Asian option by using the operator-splitting method (OSM). Since there is no closed-form solution for the arithmetic Asian option, finding a good numerical algorithm to value the arithmetic Asian option is important. In this paper, we focus on a two-dimensional PDE. The OSM is famous for dealing with plural-dimensional PDE using finite difference discretization. We provide a detailed numerical algorithm and compare results with MCS method to show the performance of the method.
Keywords
Arithmetic Asian option; operator splitting method; finite difference method; Black-Scholes equation;
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