Fast pricing of European Asian options with provable accuracy: Single-stock and basket options?

Karhan Akcoglu, Ming Yang Kao, Shuba V. Raghavan

Research output: Chapter in Book/Report/Conference proceedingConference contribution

6 Citations (Scopus)

Abstract

This paper develops three polynomial-time techniques for pricing European Asian options with provably small errors, where the stock prices follow binomial trees or trees of higher-degree. The first technique is the first known Monte Carlo algorithm with analytical error bounds suitable for pricing single-stock options with meaningful confidence and speed. The second technique is a general recursive bucketing- based scheme that enables robust trade-offs between accuracy and run- time. The third technique combines the Fast Fourier Transform with bucketing-based schemes for pricing basket options. This technique is extremely fast, polynomial in the number of days and stocks, and does not add any errors to those already incurred in the companion bucketing scheme.

Original languageEnglish (US)
Title of host publicationAlgorithms - ESA 2001 - 9th Annual European Symposium, Proceedings
PublisherSpringer Verlag
Pages404-415
Number of pages12
ISBN (Print)9783540424932
StatePublished - Jan 1 2001
Event9th Annual European Symposium on Algorithms, ESA 2001 - Arhus, Denmark
Duration: Aug 28 2001Aug 31 2001

Publication series

NameLecture Notes in Computer Science (including subseries Lecture Notes in Artificial Intelligence and Lecture Notes in Bioinformatics)
Volume2161
ISSN (Print)0302-9743
ISSN (Electronic)1611-3349

Other

Other9th Annual European Symposium on Algorithms, ESA 2001
CountryDenmark
CityArhus
Period8/28/018/31/01

Fingerprint

Asian Options
European Options
Pricing
Polynomials
Costs
Fast Fourier transforms
Monte Carlo Algorithm
Stock Prices
Option Pricing
Fast Fourier transform
Error Bounds
Confidence
Polynomial time
Trade-offs
Polynomial

ASJC Scopus subject areas

  • Theoretical Computer Science
  • Computer Science(all)

Cite this

Akcoglu, K., Kao, M. Y., & Raghavan, S. V. (2001). Fast pricing of European Asian options with provable accuracy: Single-stock and basket options? In Algorithms - ESA 2001 - 9th Annual European Symposium, Proceedings (pp. 404-415). (Lecture Notes in Computer Science (including subseries Lecture Notes in Artificial Intelligence and Lecture Notes in Bioinformatics); Vol. 2161). Springer Verlag.
Akcoglu, Karhan ; Kao, Ming Yang ; Raghavan, Shuba V. / Fast pricing of European Asian options with provable accuracy : Single-stock and basket options?. Algorithms - ESA 2001 - 9th Annual European Symposium, Proceedings. Springer Verlag, 2001. pp. 404-415 (Lecture Notes in Computer Science (including subseries Lecture Notes in Artificial Intelligence and Lecture Notes in Bioinformatics)).
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Akcoglu, K, Kao, MY & Raghavan, SV 2001, Fast pricing of European Asian options with provable accuracy: Single-stock and basket options? in Algorithms - ESA 2001 - 9th Annual European Symposium, Proceedings. Lecture Notes in Computer Science (including subseries Lecture Notes in Artificial Intelligence and Lecture Notes in Bioinformatics), vol. 2161, Springer Verlag, pp. 404-415, 9th Annual European Symposium on Algorithms, ESA 2001, Arhus, Denmark, 8/28/01.

Fast pricing of European Asian options with provable accuracy : Single-stock and basket options? / Akcoglu, Karhan; Kao, Ming Yang; Raghavan, Shuba V.

Algorithms - ESA 2001 - 9th Annual European Symposium, Proceedings. Springer Verlag, 2001. p. 404-415 (Lecture Notes in Computer Science (including subseries Lecture Notes in Artificial Intelligence and Lecture Notes in Bioinformatics); Vol. 2161).

Research output: Chapter in Book/Report/Conference proceedingConference contribution

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Akcoglu K, Kao MY, Raghavan SV. Fast pricing of European Asian options with provable accuracy: Single-stock and basket options? In Algorithms - ESA 2001 - 9th Annual European Symposium, Proceedings. Springer Verlag. 2001. p. 404-415. (Lecture Notes in Computer Science (including subseries Lecture Notes in Artificial Intelligence and Lecture Notes in Bioinformatics)).