scholarly journals Fourier Transform of the Continuous Arithmetic Asian Options PDE

2011 ◽  
Vol 2011 ◽  
pp. 1-8
Author(s):  
Zieneb Ali Elshegmani ◽  
Rokiah Rozita Ahmad
Keyword(s):  
Fourier Transform ◽  
Direct Method ◽  
Option Price ◽  
Closed Form Solution ◽  
Form Solution ◽  
Three Dimensions ◽  
Asian Option ◽  
Asian Options ◽  
Partial Differential ◽  
Constant Coefficients

Price of the arithmetic Asian options is not known in a closed-form solution, since arithmetic Asian option PDE is a degenerate partial differential equation in three dimensions. In this work we provide a new method for computing the continuous arithmetic Asian option price by means of partial differential equations. Using Fourier transform and changing some variables of the PDE we get a new direct method for solving the governing PDE without reducing the dimensionality of the PDE as most authors have done. We transform the second-order PDE with nonconstant coefficients to the first order with constant coefficients, which can be solved analytically.

scholarly journals Geometric Average Asian Option Pricing with Paying Dividend Yield under Non-Extensive Statistical Mechanics for Time-Varying Model

Entropy ◽  
2018 ◽  
Vol 20 (11) ◽  
pp. 828 ◽  
Author(s):  
Jixia Wang ◽  
Yameng Zhang
Keyword(s):  
Statistical Mechanics ◽  
Option Pricing ◽  
Asset Price ◽  
Closed Form Solution ◽  
Real Data ◽  
Form Solution ◽  
Asian Option ◽  
Time Varying ◽  
Dividend Yield ◽  
Geometric Average

This paper is dedicated to the study of the geometric average Asian call option pricing under non-extensive statistical mechanics for a time-varying coefficient diffusion model. We employed the non-extensive Tsallis entropy distribution, which can describe the leptokurtosis and fat-tail characteristics of returns, to model the motion of the underlying asset price. Considering that economic variables change over time, we allowed the drift and diffusion terms in our model to be time-varying functions. We used the I t o ^ formula, Feynman–Kac formula, and P a d e ´ ansatz to obtain a closed-form solution of geometric average Asian option pricing with a paying dividend yield for a time-varying model. Moreover, the simulation study shows that the results obtained by our method fit the simulation data better than that of Zhao et al. From the analysis of real data, we identify the best value for q which can fit the real stock data, and the result shows that investors underestimate the risk using the Black–Scholes model compared to our model.

EQUILIBRIUM VALUATION OF CURRENCY OPTIONS UNDER A DISCONTINUOUS MODEL WITH CO-JUMPS

2020 ◽  
pp. 1-19
Author(s):  
Yu Xing ◽  
Yuhua Xu ◽  
Huawei Niu
Keyword(s):  
Implied Volatility ◽  
Option Price ◽  
Closed Form Solution ◽  
Continuous Model ◽  
Form Solution ◽  
Jump Processes ◽  
Currency Options ◽  
Currency Option ◽  
Jump Intensity ◽  
Discontinuous Model

Abstract In this paper, we study the equilibrium valuation for currency options in a setting of the two-country Lucas-type economy. Different from the continuous model in Bakshi and Chen [1], we propose a discontinuous model with jump processes. Empirical findings reveal that the jump components in each country's money supply can be decomposed into the simultaneous co-jump component and the country-specific jump component. Each of the jump components is modeled with a Poisson process whose jump intensity follows a mean reversion stochastic process. By solving a partial integro-differential equation (PIDE), we get a closed-form solution to the PIDE for a European call currency option. The numerical results show that the derived option pricing formula is efficient for practical use. Importantly, we find that the co-jump has a significant impact on option price and implied volatility.

Fundamental Solution via Invariant Approach for a Brain Tumor Model and its Extensions

2014 ◽  
Vol 69 (12) ◽  
pp. 725-732 ◽  
Author(s):  
Andrew G. Johnpillai ◽  
Fazal M. Mahomed ◽  
Saeid Abbasbandy
Keyword(s):  
Brain Tumor ◽  
Partial Differential Equations ◽  
Fundamental Solution ◽  
Differential Equations ◽  
Closed Form Solution ◽  
Form Solution ◽  
Tumor Models ◽  
Partial Differential ◽  
Equivalence Transformations ◽  
Extended Class

AbstractWe firstly show how one can use the invariant criteria for a scalar linear (1+1) parabolic partial differential equations to perform reduction under equivalence transformations to the first Lie canonical form for a class of brain tumor models. Fundamental solution for the underlying class of models via these transformations is thereby found by making use of the well-known fundamental solution of the classical heat equation. The closed-form solution of the Cauchy initial value problem of the model equations is then obtained as well. We also demonstrate the utility of the invariant method for the extended form of the class of brain tumor models and find in a simple and elegant way the possible forms of the arbitrary functions appearing in the extended class of partial differential equations. We also derive the equivalence transformations which completely classify the underlying extended class of partial differential equations into the Lie canonical forms. Examples are provided as illustration of the results.

scholarly journals Transforming Arithmetic Asian Option PDE to the Parabolic Equation with Constant Coefficients

2011 ◽  
Vol 2011 ◽  
pp. 1-6 ◽  
Author(s):  
Zieneb Ali Elshegmani ◽  
Rokiah Rozita Ahmad ◽  
Saiful Hafiza Jaaman ◽  
Roza Hazli Zakaria
Keyword(s):  
Parabolic Equation ◽  
Analytical Solution ◽  
Heat Equation ◽  
Numerical Solution ◽  
Closed Form ◽  
Asian Option ◽  
Asian Options ◽  
New Approach ◽  
Constant Coefficients ◽  
Closed Form Analytical Solution

Arithmetic Asian options are difficult to price and hedge, since at present, there is no closed-form analytical solution to price them. Transforming the PDE of the arithmetic the Asian option to a heat equation with constant coefficients is found to be difficult or impossible. Also, the numerical solution of the arithmetic Asian option PDE is not very accurate since the Asian option has low volatility level. In this paper, we analyze the value of the arithmetic Asian option with a new approach using means of partial differential equations (PDEs), and we transform the PDE to a parabolic equation with constant coefficients. It has been shown previously that the PDE of the arithmetic Asian option cannot be transformed to a heat equation with constant coefficients. We, however, approach the problem and obtain the analytical solution of the arithmetic Asian option PDE.

AN ACCURATE VALUATION OF ASIAN OPTIONS USING MOMENTS

2002 ◽  
Vol 05 (02) ◽  
pp. 147-169 ◽  
Author(s):  
G. FUSAI ◽  
A. TAGLIANI
Keyword(s):  
Maximum Entropy ◽  
Option Price ◽  
High Accuracy ◽  
Great Accuracy ◽  
Entropy Density ◽  
Asian Option ◽  
Asian Options ◽  
True Density ◽  
Arithmetic Average ◽  
First Four Moments

We propose a new method for evaluating fixed strike Asian options using moments. In particular we show that the density of the logarithm of the arithmetic average is uniquely determined from its moments. Resorting to the maximum entropy density, we show that the first four moments are sufficient to recover with great accuracy the true density of the average. Then the Asian option price is estimated with high accuracy. We compare the proposed method with others based on the computation of moments.

scholarly journals FOURIER TRANSFORM METHODS FOR REGIME-SWITCHING JUMP-DIFFUSIONS AND THE PRICING OF FORWARD STARTING OPTIONS

2012 ◽  
Vol 15 (05) ◽  
pp. 1250037 ◽  
Author(s):  
ALESSANDRO RAMPONI
Keyword(s):  
Fourier Transform ◽  
Regime Switching ◽  
Closed Form Solution ◽  
Jump Diffusion ◽  
Form Solution ◽  
Transform Method ◽  
Finite State ◽  
Jump Diffusion Model ◽  
Log Price ◽  
The Fourier Transform

In this paper we consider a jump-diffusion dynamic whose parameters are driven by a continuous time and stationary Markov Chain on a finite state space as a model for the underlying of European contingent claims. For this class of processes we firstly outline the Fourier transform method both in log-price and log-strike to efficiently calculate the value of various types of options and as a concrete example of application, we present some numerical results within a two-state regime switching version of the Merton jump-diffusion model. Then we develop a closed-form solution to the problem of pricing a Forward Starting Option and use this result to approximate the value of such a derivative in a general stochastic volatility framework.

The Axially Loaded Circular Cylinder

1962 ◽  
Vol 29 (2) ◽  
pp. 318-320
Author(s):  
H. D. Conway
Keyword(s):  
Exact Solution ◽  
Fourier Transform ◽  
Circular Cylinder ◽  
Closed Form ◽  
Cross Sections ◽  
Closed Form Solution ◽  
Form Solution ◽  
Concentrated Force ◽  
Transform Method ◽  
Fourier Transform Method

Commencing with Kelvin’s closed-form solution to the problem of a concentrated force acting at a given point in an indefinitely extended solid, a Fourier transform method is used to obtain an exact solution for the case when the force acts along the axis of a circular cylinder. Numerical values are obtained for the maximum direct stress on cross sections at various distances from the force. These are then compared with the corresponding stresses from the solution for an infinitely long strip, and in both cases it is observed that the stresses are practically uniform on cross sections greater than a diameter or width from the point of application of the load.

scholarly journals Dynamic Analysis of an Infinitely Long Beam Resting on a Kelvin Foundation under Moving Random Loads

2017 ◽  
Vol 2017 ◽  
pp. 1-13
Author(s):  
Y. Zhao ◽  
L. T. Si ◽  
H. Ouyang
Keyword(s):  
Fourier Transform ◽  
Random Vibration ◽  
Moving Load ◽  
Closed Form Solution ◽  
Form Solution ◽  
Integration Scheme ◽  
Random Loads ◽  
Numerical Integration Scheme ◽  
Vibration Responses ◽  
The Fourier Transform

Nonstationary random vibration analysis of an infinitely long beam resting on a Kelvin foundation subjected to moving random loads is studied in this paper. Based on the pseudo excitation method (PEM) combined with the Fourier transform (FT), a closed-form solution of the power spectral responses of the nonstationary random vibration of the system is derived in the frequency-wavenumber domain. On the numerical integration scheme a fast Fourier transform is developed for moving load problems through a parameter substitution, which is found to be superior to Simpson’s rule. The results obtained by using the PEM-FT method are verified using Monte Carlo method and good agreement between these two sets of results is achieved. Special attention is paid to investigation of the effects of the moving load velocity, a few key system parameters, and coherence of loads on the random vibration responses. The relationship between the critical speed and resonance is also explored.

scholarly journals Optimal derivative liquidation timing under path-dependent risk penalties

2015 ◽  
Vol 02 (01) ◽  
pp. 1550004 ◽  
Author(s):  
Tim Leung ◽  
Yoshihiro Shirai
Keyword(s):  
Optimal Stopping ◽  
Existence And Uniqueness ◽  
Market Price ◽  
Option Price ◽  
Closed Form Solution ◽  
Form Solution ◽  
Optimal Timing ◽  
Combined Effects ◽  
Optimal Stopping Problem ◽  
Path Dependent

This paper studies the risk-adjusted optimal timing to liquidate an option at the prevailing market price. In addition to maximizing the expected discounted return from option sale, we incorporate a path-dependent risk penalty based on shortfall or quadratic variation of the option price up to the liquidation time. We establish the conditions under which it is optimal to immediately liquidate or hold the option position through expiration. Furthermore, we study the variational inequality associated with the optimal stopping problem, and prove the existence and uniqueness of a strong solution. A series of analytical and numerical results are provided to illustrate the nontrivial optimal liquidation strategies under geometric Brownian motion (GBM) and exponential Ornstein–Uhlenbeck models. We examine the combined effects of price dynamics and risk penalty on the sell and delay regions for various options. In addition, we obtain an explicit closed-form solution for the liquidation of a stock with quadratic penalty under the GBM model.

scholarly journals Numerical Algorithm for Delta of Asian Option

2015 ◽  
Vol 2015 ◽  
pp. 1-6
Author(s):  
Boxiang Zhang ◽  
Yang Yu ◽  
Weiguo Wang
Keyword(s):  
Efficient Solution ◽  
Variance Reduction ◽  
Analytical Form ◽  
Form Solution ◽  
Asian Option ◽  
Asian Options ◽  
Hedging Strategy ◽  
Close Form Solution ◽  
Reduction Methods ◽  
Close Form

We study the numerical solution of the Greeks of Asian options. In particular, we derive a close form solution ofΔof Asian geometric option and use this analytical form as a control to numerically calculateΔof Asian arithmetic option, which is known to have no explicit close form solution. We implement our proposed numerical method and compare the standard error with other classical variance reduction methods. Our method provides an efficient solution to the hedging strategy with Asian options.

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