Pricing discrete Asian barrier options on lattices

William W Y Hsu, Cheng Yu Lu*, Ming-Yang Kao, Yuh Dauh Lyuu, Jan Ming Ho

*Corresponding author for this work

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

Abstract

Asian barrier options are barrier options whose trigger is based on an average underlying price. They provide the advantages of both Asian options and barrier options. This paper introduces the first quadratic-time lattice algorithm to price European-style Asian barrier options. It is by far the most efficient lattice algorithm with convergence guarantees. The algorithm relies on the Lagrange multipliers to optimally distribute the number of states for each node of the multinomial lattice. We also show experiment results to demonstrate effectiveness and efficiency of our algorithm by comparing with Monte Carlo simulations.

Original languageEnglish (US)
Title of host publication2012 IEEE Conference on Computational Intelligence for Financial Engineering and Economics, CIFEr 2012 - Proceedings
Pages85-92
Number of pages8
DOIs
StatePublished - Nov 27 2012
Event2012 IEEE Conference on Computational Intelligence for Financial Engineering and Economics, CIFEr 2012 - New York City, NY, United States
Duration: Mar 29 2012Mar 30 2012

Other

Other2012 IEEE Conference on Computational Intelligence for Financial Engineering and Economics, CIFEr 2012
CountryUnited States
CityNew York City, NY
Period3/29/123/30/12

Fingerprint

Costs
Lagrange multipliers
Pricing
Barrier options
Asia
Experiments
Monte Carlo simulation
Experiment
Node
Guarantee
Asian options
Trigger

Keywords

  • Asian options
  • barrier options
  • lattice algorithms
  • multinomial model

ASJC Scopus subject areas

  • Artificial Intelligence
  • Finance

Cite this

Hsu, W. W. Y., Lu, C. Y., Kao, M-Y., Lyuu, Y. D., & Ho, J. M. (2012). Pricing discrete Asian barrier options on lattices. In 2012 IEEE Conference on Computational Intelligence for Financial Engineering and Economics, CIFEr 2012 - Proceedings (pp. 85-92). [6327776] https://doi.org/10.1109/CIFEr.2012.6327776
Hsu, William W Y ; Lu, Cheng Yu ; Kao, Ming-Yang ; Lyuu, Yuh Dauh ; Ho, Jan Ming. / Pricing discrete Asian barrier options on lattices. 2012 IEEE Conference on Computational Intelligence for Financial Engineering and Economics, CIFEr 2012 - Proceedings. 2012. pp. 85-92
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Hsu, WWY, Lu, CY, Kao, M-Y, Lyuu, YD & Ho, JM 2012, Pricing discrete Asian barrier options on lattices. in 2012 IEEE Conference on Computational Intelligence for Financial Engineering and Economics, CIFEr 2012 - Proceedings., 6327776, pp. 85-92, 2012 IEEE Conference on Computational Intelligence for Financial Engineering and Economics, CIFEr 2012, New York City, NY, United States, 3/29/12. https://doi.org/10.1109/CIFEr.2012.6327776

Pricing discrete Asian barrier options on lattices. / Hsu, William W Y; Lu, Cheng Yu; Kao, Ming-Yang; Lyuu, Yuh Dauh; Ho, Jan Ming.

2012 IEEE Conference on Computational Intelligence for Financial Engineering and Economics, CIFEr 2012 - Proceedings. 2012. p. 85-92 6327776.

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

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N2 - Asian barrier options are barrier options whose trigger is based on an average underlying price. They provide the advantages of both Asian options and barrier options. This paper introduces the first quadratic-time lattice algorithm to price European-style Asian barrier options. It is by far the most efficient lattice algorithm with convergence guarantees. The algorithm relies on the Lagrange multipliers to optimally distribute the number of states for each node of the multinomial lattice. We also show experiment results to demonstrate effectiveness and efficiency of our algorithm by comparing with Monte Carlo simulations.

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Hsu WWY, Lu CY, Kao M-Y, Lyuu YD, Ho JM. Pricing discrete Asian barrier options on lattices. In 2012 IEEE Conference on Computational Intelligence for Financial Engineering and Economics, CIFEr 2012 - Proceedings. 2012. p. 85-92. 6327776 https://doi.org/10.1109/CIFEr.2012.6327776