Accurate closed-form approximation for pricing Asian and basket options

Authors:
Jinke Zhou;Xiaolu Wang
Affiliations:
Chern Institute of Mathematics, Nankai University, Tianjin, People's Republic of China;Shenzhen Financial Engineering College of Nankai University, Shenzhen, People's Republic of China
Venue:
Applied Stochastic Models in Business and Industry
Year:
2008

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Abstract

By approximating the distribution of the sum of correlated lognormals with some log-extended-skew-normal distribution, we present closed-form approximation formulae for pricing both Asian and basket options. Numerical comparison shows that our formulae provide both computational simplicity and accuracy. Copyright © 2008 John Wiley & Sons, Ltd.