Valuation of Asian American Option Using a Modified Path Simulation Method

Ferry Jaya Permana, Dharma Lesmono, Erwinna Chendra

Department of Mathematics, Universitas Katolik Parahyangan, Bandung, Indonesia.

DOI: 10.4236/wjet.2015.33C044                

Abstract

In this paper, we use a modified path simulation method for valuation of Asian American Options. This method is a modification of the path simulation model proposed by Tiley. We assume that the behavior of the log return of the underlying assets follows the Variance Gamma (VG) process, since its distribution is heavy tail and leptokurtic. We provide sensitivity analysis of this method and compare the obtained prices to Asian European option prices.

Keywords

Asian American Option, European American Option, Variance Gamma Process, Path Simulation Model

Conflicts of Interest

The authors declare no conflicts of interest.

References

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