Short Maturity Asian Options in Local Volatility Models

Dr. Lingjiong Zhu
Florida State University
Friday, November 10, 2017 -
5:30pm to 6:30pm
Vincent Hall 16

We present a rigorous study of the short maturity asymptotics
for Asian options with continuous-time averaging, under the assumption
that the underlying asset follows a local volatility model. The
asymptotics for out-of-the-money and at-the-money cases are derived, and
explicit formulas are given in the cases of Black-Scholes model,
square-root model and CEV model. We present an analytical approximation
for Asian options prices, and demonstrate good numerical agreement of the
asymptotic results with the results of Monte Carlo simulations and
benchmark test cases. This is based on the joint work with Dan Pirjol.