New pricing formula for arithmetic asian options using PDE approach

Zieneb Ali Elshegmani, Rokiah @ Rozita Ahmad, Roza Hazli Zakaria

Research output: Contribution to journalArticle

3 Citations (Scopus)

Abstract

Pricing, and hedging Arithmetic Asian options are difficult, since at present there is no closed-form analytical solution exists to price them. This difficulty has led to the development of various methods and models used to price these instruments. In this paper, we propose partial differential equations (PDEs) approach to value the continuous arithmetic Asian options. We provide analytical solution for Rogers and Shi PDE by using changes of some variables and Fourier transform. This is the contribution of this paper since to the best of our knowledge; Rogers-Shi PDE has only been solved numerically. We transform the second order PDE of the arithmetic Asian options to the ODE from the first order, and then we give it's analytical solution.

Original languageEnglish
Pages (from-to)3801-3809
Number of pages9
JournalApplied Mathematical Sciences
Volume5
Issue number77-80
Publication statusPublished - 2011

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Asian Options
Partial differential equations
Pricing
Partial differential equation
Analytical Solution
Costs
Hedging
Second order differential equation
Fourier transform
Fourier transforms
Closed-form
Transform
First-order

ASJC Scopus subject areas

  • Applied Mathematics

Cite this

New pricing formula for arithmetic asian options using PDE approach. / Elshegmani, Zieneb Ali; Ahmad, Rokiah @ Rozita; Zakaria, Roza Hazli.

In: Applied Mathematical Sciences, Vol. 5, No. 77-80, 2011, p. 3801-3809.

Research output: Contribution to journalArticle

Elshegmani, ZA, Ahmad, RR & Zakaria, RH 2011, 'New pricing formula for arithmetic asian options using PDE approach', Applied Mathematical Sciences, vol. 5, no. 77-80, pp. 3801-3809.
Elshegmani, Zieneb Ali ; Ahmad, Rokiah @ Rozita ; Zakaria, Roza Hazli. / New pricing formula for arithmetic asian options using PDE approach. In: Applied Mathematical Sciences. 2011 ; Vol. 5, No. 77-80. pp. 3801-3809.
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