Pricing Asian options with stochastic convenience yield and jumps

Ewald, C.-O. , Wu, Y. and Zhang, A. (2023) Pricing Asian options with stochastic convenience yield and jumps. Quantitative Finance, 23(4), pp. 677-692. (doi: 10.1080/14697688.2022.2160799)

Abstract

We price Asian options on commodity futures contracts in the presence of stochastic convenience yield, stochastic interest rates and jumps in the commodity spot price. In the case of no jumps, we obtain a closed-form solution for a geometric average Asian option. This analytic result enables us to employ this option as a suitable control variate when pricing the corresponding arithmetic average Asian option. Discussion of further applications and comparative statics are presented. To cover the case with jumps, we condition on the jump times first and then average over the sequences of jump times.

• Item Type: Articles
• Additional Information: Aihua Zhang acknowledges financial support from the Department of Education of Guangdong Province [project code 2021ZDZX1059]; Start-up Research Fund from UIC [grant number UICR0700015-22]; and Guangdong Provincial Key Laboratory of Interdisciplinary Research and Application for Data Science [grant number 2022B1212010006].
• Status: Published
• Refereed: Yes
• Glasgow Author(s) Enlighten ID: Ewald, Professor Christian and Zhang, Dr Aihua and Wu, Yuexiang
• Authors: Ewald, C.-O., Wu, Y., and Zhang, A.
• College/School: College of Social Sciences > Adam Smith Business School > Economics
• Journal Name: Quantitative Finance
• Publisher: Taylor & Francis
• ISSN: 1469-7688
• ISSN (Online): 1469-7696
• Published Online: 11 January 2023
• Copyright Holders: Copyright © 2023 Informa UK Limited, trading as Taylor and Francis Group
• First Published: First published in Quantitative Finance 23(4): 677-692
• Publisher Policy: Reproduced in accordance with the publisher copyright policy

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