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On the equivalence of floating- and fixed-strike Asian options

Part of: Stochastic processes

Published online by Cambridge University Press:  14 July 2016

Vicky Henderson  and
Rafał Wojakowski
Vicky Henderson*
Affiliation:
University of Oxford
Rafał Wojakowski*
Affiliation:
Lancaster University
*
∗ Postal address: Nomura Centre for Quantitative Finance, Mathematical Institute, 24-29 St Giles’, Oxford OX1 3LB, UK. Email address: henders1@maths.ox.ac.uk
∗ Postal address: Department of Accounting and Finance, Lancaster University, Management School, Lancaster LA1 4YX, UK.
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Abstract

There are two types of Asian options in the financial markets which differ according to the role of the average price. We give a symmetry result between the floating- and fixed-strike Asian options. The proof involves a change of numéraire and time reversal of Brownian motion. Symmetries are very useful in option valuation, and in this case the result allows the use of more established fixed-strike pricing methods to price floating-strike Asian options.

Keywords

Asian optionfloating-strike Asian optionput call symmetrychange of numérairetime reversalBrownian motion

MSC classification

Primary: 60G44: Martingales with continuous parameter
Type
Short Communications
Information
Journal of Applied Probability , Volume 39 , Issue 2 , June 2002 , pp. 391 - 394
Copyright
Copyright © Applied Probability Trust 2002 

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