Results 1  10
of
153
On some exponential functionals of Brownian motion
 Adv. Appl. Prob
, 1992
"... Abstract: This is the second part of our survey on exponential functionals of Brownian motion. We focus on the applications of the results about the distributions of the exponential functionals, which have been discussed in the first part. Pricing formula for call options for the Asian options, expl ..."
Abstract

Cited by 200 (15 self)
 Add to MetaCart
(Show Context)
Abstract: This is the second part of our survey on exponential functionals of Brownian motion. We focus on the applications of the results about the distributions of the exponential functionals, which have been discussed in the first part. Pricing formula for call options for the Asian options, explicit expressions for the heat kernels on hyperbolic spaces, diffusion processes in random environments and extensions of Lévy’s and Pitman’s theorems are discussed.
The Concept of Comonotonicity in Actuarial Science and Finance: Applications
 Mathematics & Economics
, 2002
"... In an insurance c o text,o ne isoB interested in thedistributio functio o a sum o rando variables. Such a sum appears when coBBthe aggregate claimso f an insurance po rtfo o ver a certain reference perio d. Italso appears when coBdisco ted payments related to a single po licyo a poBat di#erent futur ..."
Abstract

Cited by 132 (50 self)
 Add to MetaCart
In an insurance c o text,o ne isoB interested in thedistributio functio o a sum o rando variables. Such a sum appears when coBBthe aggregate claimso f an insurance po rtfo o ver a certain reference perio d. Italso appears when coBdisco ted payments related to a single po licyo a poBat di#erent future po ints in time. Theassumptio o mutual independence between the coB oB ts o the sum is very co venient fro a coB po int o view, butsoB no a realistico ne. In The Concept of Comonotonicity in Actuarial Science and Finance: Theory, we determined appro ximatio fo sumso f rando variables, when thedistributio o f the coB oB ts are kno wn, but thesto chastic dependence structure between them isunkno wn oto o cumberso to wo rk with. Practical applicatio o f thistheo will becoBin this paper. o. papers are to a large extent ano verviewo recent research resultsos tained by theautho butalso newtheoBand practical results are presented. 1
Upper and lower bounds for sums of random variables
 Insurance: Mathematics and Economics
, 2000
"... In this contribution, the upper bounds for sums of dependent random variables Xl + X 2 +... + Xn derived by using comonotonicity are sharpened for the case when there exists a random variable Z such that the distribution functions of the Xi, given Z = z, are known. By a similar technique, lower bou ..."
Abstract

Cited by 89 (35 self)
 Add to MetaCart
In this contribution, the upper bounds for sums of dependent random variables Xl + X 2 +... + Xn derived by using comonotonicity are sharpened for the case when there exists a random variable Z such that the distribution functions of the Xi, given Z = z, are known. By a similar technique, lower bounds are derived. A numerical application for the case of lognormal random variables is given. 1
Pricing and Hedging Spread Options
 SIAM Review
, 2003
"... Abstract. We survey theoretical and computational problems associated with the pricing and hedging of spread options. These options are ubiquitous in the financial markets, whether they be equity, fixed income, foreign exchange, commodities, or energy markets. As a matter of introduction, we present ..."
Abstract

Cited by 59 (8 self)
 Add to MetaCart
Abstract. We survey theoretical and computational problems associated with the pricing and hedging of spread options. These options are ubiquitous in the financial markets, whether they be equity, fixed income, foreign exchange, commodities, or energy markets. As a matter of introduction, we present a general overview of the common features of all spread options by discussing in detail their roles as speculation devices and risk management tools. We describe the mathematical framework used to model them, and we review the numerical algorithms actually used to price and hedge them. There is already extensive literature on the pricing of spread options in the equity and fixed income markets, and our contribution is mostly to put together material scattered across a wide spectrum of recent textbooks and journal articles. On the other hand, information about the various numerical procedures that can be used to price and hedge spread options on physical commodities is more difficult to find. For this reason, we make a systematic effort to choose examples from the energy markets in order to illustrate the numerical challenges associated with these instruments. This gives us a chance to discuss an interesting application of spread options to an asset valuation problem after it is recast in the framework of real options. This approach is currently the object of intense mathematical research. In this spirit, we review the two major avenues to modeling energy price dynamics. We explain how the pricing and hedging algorithms can be implemented in the framework of models for both the spot price dynamics and the forward curve dynamics.
Robust Numerical Methods for PDE Models of Asian Options
 Journal of Computational Finance
, 1998
"... We explore the pricing of Asian options by numerically solving the the associated partial differential equations. We demonstrate that numerical PDE techniques commonly used in finance for standard options are inaccurate in the case of Asian options and illustrate modifications which alleviate this p ..."
Abstract

Cited by 59 (15 self)
 Add to MetaCart
We explore the pricing of Asian options by numerically solving the the associated partial differential equations. We demonstrate that numerical PDE techniques commonly used in finance for standard options are inaccurate in the case of Asian options and illustrate modifications which alleviate this problem. In particular, the usual methods generally produce solutions containing spurious oscillations. We adapt flux limiting techniques originally developed in the field of computational fluid dynamics in order to rapidly obtain accurate solutions. We show that flux limiting methods are total variation diminishing (and hence free of spurious oscillations) for nonconservative PDEs such as those typically encountered in finance, for fully explicit, and fully and partially implicit schemes. We also modify the van Leer flux limiter so that the secondorder total variation diminishing property is preserved for nonuniform grid spacing. 1 Introduction Asian options are securities with payoffs...
Spectral Expansions for Asian (Average Price) Options
, 2004
"... Arithmetic Asian or average price options deliver payoffs based on the average underlying price over a prespecified time period. Asian options are an important family of derivative contracts with a wide variety of applications in currency, equity, interest rate, commodity, energy, and insurance mark ..."
Abstract

Cited by 32 (4 self)
 Add to MetaCart
Arithmetic Asian or average price options deliver payoffs based on the average underlying price over a prespecified time period. Asian options are an important family of derivative contracts with a wide variety of applications in currency, equity, interest rate, commodity, energy, and insurance markets. We derive two analytical formulas for the value of the continuously sampled arithmetic Asian option when the underlying asset price follows geometric Brownian motion. We use an identity in law between the integral of geometric Brownian motion over a finite time interval 0 t and the state at time t of a onedimensional diffusion process with affine drift and linear diffusion and express Asian option values in terms of spectral expansions associated with the diffusion infinitesimal generator. The first formula is an infinite series of terms involving Whittaker functions M and W. The second formula is a single real integral of an expression involving Whittaker function W plus (for some parameter values) a finite number of additional terms involving incomplete gamma functions and Laguerre polynomials. The two formulas allow accurate computation of continuously sampled arithmetic Asian option prices.
A new PDE approach for pricing arithmetic average Asian options
, 2000
"... . In this paper, arithmetic average Asian options are studied. It is observed that the Asian option is a special case of the option on a traded account. The price of the Asian option is characterized by a simple onedimensional partial dierential equation which could be applied to both continuous an ..."
Abstract

Cited by 32 (1 self)
 Add to MetaCart
. In this paper, arithmetic average Asian options are studied. It is observed that the Asian option is a special case of the option on a traded account. The price of the Asian option is characterized by a simple onedimensional partial dierential equation which could be applied to both continuous and discrete average Asian option. The article also provides numerical implementation of the pricing equation. The implementation is fast and accurate even for low volatility and/or short maturity cases. Key words: Asian options, Options on a traded account, Brownian motion, xed strike, oating strike. 1 Introduction Asian options are securities with payo which depends on the average of the underlying stock price over certain time interval. Since no general analytical solution for the price of the Asian option is known, a variety of techniques have been developed to analyze arithmetic average Asian options. A number of approximations that produce closed form expressions have appeared, se...
Competitive Monte Carlo methods for the Pricing of Asian Options
 Journal of Computational Finance
, 2000
"... We explain how a carefully chosen scheme can lead to competitive Monte Carlo algorithm for the computation of the price of Asian options. We give evidence of the eciency of these algorithms with a mathematical study of the rate of convergence and a numerical comparison with some existing methods. K ..."
Abstract

Cited by 23 (2 self)
 Add to MetaCart
(Show Context)
We explain how a carefully chosen scheme can lead to competitive Monte Carlo algorithm for the computation of the price of Asian options. We give evidence of the eciency of these algorithms with a mathematical study of the rate of convergence and a numerical comparison with some existing methods. Key Words: Asian option, Monte Carlo methods, Numerical methods, Diusion process. 1 Introduction Monte Carlo methods are known to be useful when the state dimension is large. This is widely true but we will give here an example of a small dimension problem coming from nance where a Monte Carlo (helped by a variance reduction technique) can be more ecient than other known methods. This example is based on the price of an Asian option (see subsection 2.1). This problem is known to be computationally hard and a lot of literature deals with this problem: using either analytic methods ([10], [9]), numerical methods based on the partial dierential equation associated ([4], [7], [12], [16]) or M...