Pricing Asian options is often done using bi- or trinomial lattice methods. Here some results for generalizing these methods to lattices with more nodes are presented. We consider Asian option pricing on a lattice where the underlying asset follows Merton–Bates jump-diffusion model and describe the construction of a lattice using the moment matching technique which results in an equation system described by a rectangular Vandermonde matrix. The system is solved using the explicit expression for the inverse of the Vandermonde matrix and some restrictions on the jump sizes of the lattice and the distribution of moments are identified. The consequences of these restrictions for the suitability of the multinomial lattice methods are also discussed.


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    Title :

    Pricing Asian options using moment matching on a multinomial lattice


    Contributors:

    Conference:

    10TH INTERNATIONAL CONFERENCE ON MATHEMATICAL PROBLEMS IN ENGINEERING, AEROSPACE AND SCIENCES: ICNPAA 2014 ; 2014 ; Narvik, Norway


    Published in:

    AIP Conference Proceedings ; 1637 , 1 ; 759-765


    Publication date :

    2014-12-10


    Size :

    7 pages





    Type of media :

    Conference paper


    Type of material :

    Electronic Resource


    Language :

    English



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