Author(s)

Yingyi Fang¹, Huisheng Shu^1*, Xiu Kan^2*, Xin Zhang¹, Zhiwei Zheng¹

¹School of Science, Donghua University, Shanghai, China.
²School of Electronic and Electrical Engineering, Shanghai University of Engineering Science, Shanghai, China.

This paper is concerned with the pricing problem of the discrete arithmetic average Asian call option while the discrete dividends follow geometric Brownian motion. The volatility of the dividends model depends on the Markov-Modulated process. The binomial tree method, in which a more accurate factor has been used, is applied to solve the corresponding pricing problem. Finally, a numerical example with simulations is presented to demonstrate the effectiveness of the proposed method.

Arithmetic Average Asian Call Option, Discrete Dividends, Geometric Brownian Motion, Markov-Modulated Volatility, Binomial Tree

Fang, Y. , Shu, H. , Kan, X. , Zhang, X. and Zheng, Z. (2017) The Asian Option Pricing when Discrete Dividends Follow a Markov-Modulated Model. Open Journal of Statistics, 7, 1067-1080. doi: 10.4236/ojs.2017.76074.