An adjusted trinomial model for pricing both European and American arithmetic average-based Asian options is proposed. The Kamrad and Ritchken trinomial tree governs the underlying asset evolution. The algorithm selects a subset of the true averages realized at each node to serve as the representative averages. The option prices are then computed via backward induction and interpolation. The results show that the trinomial method produces more accurate prices especially in the case of European style Asian options.
| Published in | American Journal of Applied Mathematics (Volume 6, Issue 2) |
| DOI | 10.11648/j.ajam.20180602.11 |
| Page(s) | 28-33 |
| Creative Commons |
This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited. |
| Copyright |
Copyright © The Author(s), 2018. Published by Science Publishing Group |
Asian Options, Arithmetic Average, Lattice, Trinomial
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APA Style
Dennis Odhiambo Ogot, Phillip Ngare, Joseph Mung’atu. (2018). An Adjusted Trinomial Lattice for Pricing Arithmetic Average Based Asian Option. American Journal of Applied Mathematics, 6(2), 28-33. https://doi.org/10.11648/j.ajam.20180602.11
ACS Style
Dennis Odhiambo Ogot; Phillip Ngare; Joseph Mung’atu. An Adjusted Trinomial Lattice for Pricing Arithmetic Average Based Asian Option. Am. J. Appl. Math. 2018, 6(2), 28-33. doi: 10.11648/j.ajam.20180602.11
AMA Style
Dennis Odhiambo Ogot, Phillip Ngare, Joseph Mung’atu. An Adjusted Trinomial Lattice for Pricing Arithmetic Average Based Asian Option. Am J Appl Math. 2018;6(2):28-33. doi: 10.11648/j.ajam.20180602.11
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Download@article{10.11648/j.ajam.20180602.11,
author = {Dennis Odhiambo Ogot and Phillip Ngare and Joseph Mung’atu},
title = {An Adjusted Trinomial Lattice for Pricing Arithmetic Average Based Asian Option},
journal = {American Journal of Applied Mathematics},
volume = {6},
number = {2},
pages = {28-33},
doi = {10.11648/j.ajam.20180602.11},
url = {https://doi.org/10.11648/j.ajam.20180602.11},
eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ajam.20180602.11},
abstract = {An adjusted trinomial model for pricing both European and American arithmetic average-based Asian options is proposed. The Kamrad and Ritchken trinomial tree governs the underlying asset evolution. The algorithm selects a subset of the true averages realized at each node to serve as the representative averages. The option prices are then computed via backward induction and interpolation. The results show that the trinomial method produces more accurate prices especially in the case of European style Asian options.},
year = {2018}
}
TY - JOUR T1 - An Adjusted Trinomial Lattice for Pricing Arithmetic Average Based Asian Option AU - Dennis Odhiambo Ogot AU - Phillip Ngare AU - Joseph Mung’atu Y1 - 2018/03/24 PY - 2018 N1 - https://doi.org/10.11648/j.ajam.20180602.11 DO - 10.11648/j.ajam.20180602.11 T2 - American Journal of Applied Mathematics JF - American Journal of Applied Mathematics JO - American Journal of Applied Mathematics SP - 28 EP - 33 PB - Science Publishing Group SN - 2330-006X UR - https://doi.org/10.11648/j.ajam.20180602.11 AB - An adjusted trinomial model for pricing both European and American arithmetic average-based Asian options is proposed. The Kamrad and Ritchken trinomial tree governs the underlying asset evolution. The algorithm selects a subset of the true averages realized at each node to serve as the representative averages. The option prices are then computed via backward induction and interpolation. The results show that the trinomial method produces more accurate prices especially in the case of European style Asian options. VL - 6 IS - 2 ER -
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