Analytic approximation formulae for pricing forward-starting Asian options
In this article we first identify a missing term in the Bouaziz, Briys, and Crouhy (1994) pricing formula for forward‐starting Asian options and derive the correct one. First, illustrate in certain cases that the missing term in their pricing formula could induce large pricing errors or unreasonable...
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| Veröffentlicht in: | The journal of futures markets 2003-05, Vol.23 (5), p.487-516 |
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| creator | Tsao, Chueh-Yung Chang, Chuang-Chang Lin, Chung-Gee |
| description | In this article we first identify a missing term in the Bouaziz, Briys, and Crouhy (1994) pricing formula for forward‐starting Asian options and derive the correct
one. First, illustrate in certain cases that the missing term in their pricing formula could induce large
pricing errors or unreasonable option prices. Second, we derive new analytic approximation formulae for valuing
forward‐starting Asian options by adding the second‐order term in the Taylor series. We show that
our formulae can accurately value forward‐starting Asian options with a large underlying asset's
volatility or a longer time window for the average of the underlying asset prices, whereas the pricing errors
for these options with the previously mentioned formula could be large. Third, we derive the hedge ratios for
these options and compare their properties with those of plain vanilla options. © 2003 Wiley Periodicals,
Inc. Jrl Fut Mark 23:487–516, 2003 |
| doi_str_mv | 10.1002/fut.10070 |
| format | Article |
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one. First, illustrate in certain cases that the missing term in their pricing formula could induce large
pricing errors or unreasonable option prices. Second, we derive new analytic approximation formulae for valuing
forward‐starting Asian options by adding the second‐order term in the Taylor series. We show that
our formulae can accurately value forward‐starting Asian options with a large underlying asset's
volatility or a longer time window for the average of the underlying asset prices, whereas the pricing errors
for these options with the previously mentioned formula could be large. Third, we derive the hedge ratios for
these options and compare their properties with those of plain vanilla options. © 2003 Wiley Periodicals,
Inc. Jrl Fut Mark 23:487–516, 2003</description><identifier>ISSN: 0270-7314</identifier><identifier>EISSN: 1096-9934</identifier><identifier>DOI: 10.1002/fut.10070</identifier><identifier>CODEN: JFMADT</identifier><language>eng</language><publisher>New York: Wiley Subscription Services, Inc., A Wiley Company</publisher><subject>Approximation ; Asia ; Assets ; Capital market ; Economic models ; Economics ; Finance ; Financial economics ; Foreign exchange rates ; Institutional investments ; Interest rates ; Investors ; Mathematical analysis ; Monte Carlo simulation ; Option pricing ; Prices ; Pricing ; Put & call options ; Securities prices ; Studies ; Volatility</subject><ispartof>The journal of futures markets, 2003-05, Vol.23 (5), p.487-516</ispartof><rights>Copyright © 2003 Wiley Periodicals, Inc.</rights><rights>Copyright Wiley Periodicals Inc. May 2003</rights><lds50>peer_reviewed</lds50><woscitedreferencessubscribed>false</woscitedreferencessubscribed><citedby>FETCH-LOGICAL-c3940-b1aac0229dac1a54e0bd5be8152f409183dd690f1f688e32685681ad02f3c3a13</citedby><cites>FETCH-LOGICAL-c3940-b1aac0229dac1a54e0bd5be8152f409183dd690f1f688e32685681ad02f3c3a13</cites></display><links><openurl>$$Topenurl_article</openurl><openurlfulltext>$$Topenurlfull_article</openurlfulltext><thumbnail>$$Tsyndetics_thumb_exl</thumbnail><linktopdf>$$Uhttps://onlinelibrary.wiley.com/doi/pdf/10.1002%2Ffut.10070$$EPDF$$P50$$Gwiley$$H</linktopdf><linktohtml>$$Uhttps://onlinelibrary.wiley.com/doi/full/10.1002%2Ffut.10070$$EHTML$$P50$$Gwiley$$H</linktohtml><link.rule.ids>315,781,785,1418,27929,27930,45579,45580</link.rule.ids></links><search><creatorcontrib>Tsao, Chueh-Yung</creatorcontrib><creatorcontrib>Chang, Chuang-Chang</creatorcontrib><creatorcontrib>Lin, Chung-Gee</creatorcontrib><title>Analytic approximation formulae for pricing forward-starting Asian options</title><title>The journal of futures markets</title><addtitle>J. Fut. Mark</addtitle><description>In this article we first identify a missing term in the Bouaziz, Briys, and Crouhy (1994) pricing formula for forward‐starting Asian options and derive the correct
one. First, illustrate in certain cases that the missing term in their pricing formula could induce large
pricing errors or unreasonable option prices. Second, we derive new analytic approximation formulae for valuing
forward‐starting Asian options by adding the second‐order term in the Taylor series. We show that
our formulae can accurately value forward‐starting Asian options with a large underlying asset's
volatility or a longer time window for the average of the underlying asset prices, whereas the pricing errors
for these options with the previously mentioned formula could be large. Third, we derive the hedge ratios for
these options and compare their properties with those of plain vanilla options. © 2003 Wiley Periodicals,
Inc. Jrl Fut Mark 23:487–516, 2003</description><subject>Approximation</subject><subject>Asia</subject><subject>Assets</subject><subject>Capital market</subject><subject>Economic models</subject><subject>Economics</subject><subject>Finance</subject><subject>Financial economics</subject><subject>Foreign exchange rates</subject><subject>Institutional investments</subject><subject>Interest rates</subject><subject>Investors</subject><subject>Mathematical analysis</subject><subject>Monte Carlo simulation</subject><subject>Option pricing</subject><subject>Prices</subject><subject>Pricing</subject><subject>Put & call options</subject><subject>Securities prices</subject><subject>Studies</subject><subject>Volatility</subject><issn>0270-7314</issn><issn>1096-9934</issn><fulltext>true</fulltext><rsrctype>article</rsrctype><creationdate>2003</creationdate><recordtype>article</recordtype><sourceid>ABUWG</sourceid><sourceid>AFKRA</sourceid><sourceid>BENPR</sourceid><sourceid>CCPQU</sourceid><sourceid>DWQXO</sourceid><recordid>eNp1kF9LwzAUxYMoOKcPfoPhg-BD9Sbpn-RxDLepYyJsuLdw16aS2bUzadn27U2d-iAIgRzC7-Tecwi5pHBLAdhd3tStSOCIdCjIOJCSh8ekAyyBIOE0PCVnzq0AQMoQOuSxX2Kxr03aw83GVjuzxtpUZS-v7LopULeit7EmNeVbq7dos8DVaOv2oe8Mlr1q01rcOTnJsXD64vvukvnwfjYYB5Pn0cOgPwlS7kcGS4qYAmMyw5RiFGpYZtFSCxqxPARJBc-yWEJO81gIzVksolhQzIDlPOVIeZdcH_71-3402tVqbVyqiwJLXTVOcRGGQjDuwas_4KpqrM_rFKPUHxkJD90coNRWzlmdK592jXavKKi2UuUrVV-VevbuwG5Noff_g2o4n_04goPDuFrvfh1o31Wc8CRSr9ORmg7HLwv5tFAL_gmKLId2</recordid><startdate>200305</startdate><enddate>200305</enddate><creator>Tsao, Chueh-Yung</creator><creator>Chang, Chuang-Chang</creator><creator>Lin, Chung-Gee</creator><general>Wiley Subscription Services, Inc., A Wiley Company</general><general>Wiley Periodicals Inc</general><scope>BSCLL</scope><scope>AAYXX</scope><scope>CITATION</scope><scope>0U~</scope><scope>1-H</scope><scope>3V.</scope><scope>7WY</scope><scope>7WZ</scope><scope>7XB</scope><scope>87Z</scope><scope>8BJ</scope><scope>8FK</scope><scope>8FL</scope><scope>ABUWG</scope><scope>AFKRA</scope><scope>BENPR</scope><scope>BEZIV</scope><scope>CCPQU</scope><scope>DWQXO</scope><scope>FQK</scope><scope>FRNLG</scope><scope>F~G</scope><scope>JBE</scope><scope>K60</scope><scope>K6~</scope><scope>L.-</scope><scope>L.0</scope><scope>M0C</scope><scope>PQBIZ</scope><scope>PQBZA</scope><scope>PQEST</scope><scope>PQQKQ</scope><scope>PQUKI</scope><scope>Q9U</scope></search><sort><creationdate>200305</creationdate><title>Analytic approximation formulae for pricing forward-starting Asian options</title><author>Tsao, Chueh-Yung ; Chang, Chuang-Chang ; Lin, Chung-Gee</author></sort><facets><frbrtype>5</frbrtype><frbrgroupid>cdi_FETCH-LOGICAL-c3940-b1aac0229dac1a54e0bd5be8152f409183dd690f1f688e32685681ad02f3c3a13</frbrgroupid><rsrctype>articles</rsrctype><prefilter>articles</prefilter><language>eng</language><creationdate>2003</creationdate><topic>Approximation</topic><topic>Asia</topic><topic>Assets</topic><topic>Capital market</topic><topic>Economic models</topic><topic>Economics</topic><topic>Finance</topic><topic>Financial economics</topic><topic>Foreign exchange rates</topic><topic>Institutional investments</topic><topic>Interest rates</topic><topic>Investors</topic><topic>Mathematical analysis</topic><topic>Monte Carlo simulation</topic><topic>Option pricing</topic><topic>Prices</topic><topic>Pricing</topic><topic>Put & call options</topic><topic>Securities prices</topic><topic>Studies</topic><topic>Volatility</topic><toplevel>peer_reviewed</toplevel><toplevel>online_resources</toplevel><creatorcontrib>Tsao, Chueh-Yung</creatorcontrib><creatorcontrib>Chang, Chuang-Chang</creatorcontrib><creatorcontrib>Lin, Chung-Gee</creatorcontrib><collection>Istex</collection><collection>CrossRef</collection><collection>Global News & ABI/Inform Professional</collection><collection>Trade PRO</collection><collection>ProQuest Central (Corporate)</collection><collection>ABI/INFORM Collection</collection><collection>ABI/INFORM Global (PDF only)</collection><collection>ProQuest Central (purchase pre-March 2016)</collection><collection>ABI/INFORM Global (Alumni Edition)</collection><collection>International Bibliography of the Social Sciences (IBSS)</collection><collection>ProQuest Central (Alumni) (purchase pre-March 2016)</collection><collection>ABI/INFORM Collection (Alumni Edition)</collection><collection>ProQuest Central (Alumni Edition)</collection><collection>ProQuest Central UK/Ireland</collection><collection>ProQuest Central</collection><collection>Business Premium Collection</collection><collection>ProQuest One Community College</collection><collection>ProQuest Central Korea</collection><collection>International Bibliography of the Social Sciences</collection><collection>Business Premium Collection (Alumni)</collection><collection>ABI/INFORM Global (Corporate)</collection><collection>International Bibliography of the Social Sciences</collection><collection>ProQuest Business Collection (Alumni Edition)</collection><collection>ProQuest Business Collection</collection><collection>ABI/INFORM Professional Advanced</collection><collection>ABI/INFORM Professional Standard</collection><collection>ABI/INFORM Global</collection><collection>ProQuest One Business</collection><collection>ProQuest One Business (Alumni)</collection><collection>ProQuest One Academic Eastern Edition (DO NOT USE)</collection><collection>ProQuest One Academic</collection><collection>ProQuest One Academic UKI Edition</collection><collection>ProQuest Central Basic</collection><jtitle>The journal of futures markets</jtitle></facets><delivery><delcategory>Remote Search Resource</delcategory><fulltext>fulltext</fulltext></delivery><addata><au>Tsao, Chueh-Yung</au><au>Chang, Chuang-Chang</au><au>Lin, Chung-Gee</au><format>journal</format><genre>article</genre><ristype>JOUR</ristype><atitle>Analytic approximation formulae for pricing forward-starting Asian options</atitle><jtitle>The journal of futures markets</jtitle><addtitle>J. Fut. Mark</addtitle><date>2003-05</date><risdate>2003</risdate><volume>23</volume><issue>5</issue><spage>487</spage><epage>516</epage><pages>487-516</pages><issn>0270-7314</issn><eissn>1096-9934</eissn><coden>JFMADT</coden><abstract>In this article we first identify a missing term in the Bouaziz, Briys, and Crouhy (1994) pricing formula for forward‐starting Asian options and derive the correct
one. First, illustrate in certain cases that the missing term in their pricing formula could induce large
pricing errors or unreasonable option prices. Second, we derive new analytic approximation formulae for valuing
forward‐starting Asian options by adding the second‐order term in the Taylor series. We show that
our formulae can accurately value forward‐starting Asian options with a large underlying asset's
volatility or a longer time window for the average of the underlying asset prices, whereas the pricing errors
for these options with the previously mentioned formula could be large. Third, we derive the hedge ratios for
these options and compare their properties with those of plain vanilla options. © 2003 Wiley Periodicals,
Inc. Jrl Fut Mark 23:487–516, 2003</abstract><cop>New York</cop><pub>Wiley Subscription Services, Inc., A Wiley Company</pub><doi>10.1002/fut.10070</doi><tpages>30</tpages></addata></record> |
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| subjects | Approximation Asia Assets Capital market Economic models Economics Finance Financial economics Foreign exchange rates Institutional investments Interest rates Investors Mathematical analysis Monte Carlo simulation Option pricing Prices Pricing Put & call options Securities prices Studies Volatility |
| title | Analytic approximation formulae for pricing forward-starting Asian options |
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