Pricing and hedging Asian basket spread options

Authors:
Griselda Deelstra;Alexandre Petkovic;Michèle Vanmaele
Affiliations:
Université Libre de Bruxelles, Département de Mathématiques, ECARES, ULB CP210, boulevard du Triomphe, 1050 Brussels, Belgium;Université Libre de Bruxelles, ECARES, ULB CP 114. 50, avenue F.D. Roosevelt. 1050 Brussels, Belgium;Universiteit Gent, Department of Applied Mathematics and Computer Science, Krijgslaan 281, S9 9000 Gent, Belgium
Venue:
Journal of Computational and Applied Mathematics
Year:
2010

Citing 4
Cited 0

Characterization of dependence of multidimensional Lévy processes using Lévy copulas

Journal of Multivariate Analysis
Bounds for Asian basket options

Journal of Computational and Applied Mathematics
Accurate closed-form approximation for pricing Asian and basket options

Applied Stochastic Models in Business and Industry
Bounds for the price of discrete arithmetic Asian options

Journal of Computational and Applied Mathematics

Quantified Score

Hi-index	7.29

Visualization

Abstract

Asian options, basket options and spread options have been extensively studied in the literature. However, few papers deal with the problem of pricing general Asian basket spread options. This paper aims to fill this gap. In order to obtain prices and Greeks in a short computation time, we develop approximation formulae based on comonotonicity theory and moment matching methods. We compare their relative performances and explain how to choose the best approximation technique as a function of the Asian basket spread characteristics. We also give explicitly the Greeks for our proposed methods. In the last section we extend our results to options denominated in foreign currency.