Efficiently pricing european-asian options — ultimate implementation and analysis of the AMO algorithm

Authors:
Akiyoshi Shioura;Takeshi Tokuyama
Affiliations:
Graduate School of Information Sciences, Tohoku University, Sendai, Japan;Graduate School of Information Sciences, Tohoku University, Sendai, Japan
Venue:
AAIM'05 Proceedings of the First international conference on Algorithmic Applications in Management
Year:
2005

Citing 3
Cited 0

Randomized algorithms

Randomized algorithms
Accurate approximations for Asian options

SODA '00 Proceedings of the eleventh annual ACM-SIAM symposium on Discrete algorithms
Fast Pricing of European Asian Options with Provable Accuracy: Single-Stock and Basket Options

ESA '01 Proceedings of the 9th Annual European Symposium on Algorithms

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Abstract

We propose an efficient and accurate randomized approximation algorithm for pricing a European-Asian option on the binomial tree model. For an option with the strike price X on an n-step binomial tree and any positive integer k, our algorithm runs in O(kn2) time with the error bound O(X/k) which is independent of n. Our algorithm is a modification of the approximation algorithm developed by Aingworth, Motwani, and Oldham (2000) into a randomized algorithm, which improves the accuracy theoretically as well as practically.