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Title: |
Pricing Geometric Asian Option Under The CEV Process |
| Author: |
Peng, Bin and Fei Peng |
| Author
Affiliation: |
Nanjing University of Science and Technology, China; University of British Columbia, Vancouver, Canada |
| Source: |
International Economic Journal, December 2006, v. 20, no. 4, pp. 515-522 |
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Publication Date: |
December 2006 |
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Abstract: |
This paper discusses the pricing of geometric Asian options when the underlying stock follows the constant elasticity of variance (CEV) process. We build a binomial tree method to estimate the CEV process and use it to price geometric Asian options. We find that the binomial tree method for the lognormal case can effectively solve the computational problems arising from the inherent complexities of geometric Asian options when the stock price follows CEV process. We present numerical results to demonstrate the validity and the convergence of the approach for the different parameter values set in CEV process.
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