Tid: 15 mars 2000 kl 1315-1400 (OBS! Dag och tid)

Plats : Seminarierummet 3721 (OBS! Lokal), Institutionen för matematik, KTH, Lindstedts väg 25, plan 7. Karta!

Föredragshållare: Jenny Dennermark

Titel: Approximation formulas for pricing Asian options


The main objective of this thesis is to find and evaluate a closed form approximation formula to price the arithmetic average call and put option, with a fixed or floating strike.

Three different approximation formulas are derived for the option with fixed strike and one for the floating strike. A put-call parity relation for average options is also derived.

The different methods are tested thoroughly and the results are verified by Monte Carlo simulations.

The best approximation formula for the option with a fixed strike gave a very stable and accurate answer. The formula is based on a moment matching method where the first two moments of the arithmetic average of future stock prices are matched with a lognormal distribution.

A pricing formula for an option which exchanges one asset for another was modified so it handled the case of a floating strike option. The resulting approximation formula also showed to be very accurate.

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