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2005•Journal of Hefei University of TechnologyRequires access

The method of martingale in Asian option pricing

DU Xue-qiao

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Abstract

Based on the hypothesis that the market is non-arbitrage, the case of coefficients being noncoefficient is discussed,and the solving process of the Asian option pricing is simplified by the methods of changing measure and martingale. Through solving the stochastic differential equation,the distribution of relevant stochastic process at certain time is gotten. Furthermore, the analytical expression of the Asian option pricing and the call-put parity relation are derived.

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What this paper is about

Based on the hypothesis that the market is non-arbitrage, the case of coefficients being noncoefficient is discussed,and the solving process of the Asian option pricing is simplified by the methods of changing measure and martingale. Through solving the stochastic differential equation,the distribution of relevant stochastic process at certain time is gotten. Furthermore, the analytical expression of the Asian option pricing and the call-put parity relation are derived.

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Available abstract

Based on the hypothesis that the market is non-arbitrage, the case of coefficients being noncoefficient is discussed,and the solving process of the Asian option pricing is simplified by the methods of changing measure and martingale. Through solving the stochastic differential equation,the distribution of relevant stochastic process at certain time is gotten. Furthermore, the analytical expression of the Asian option pricing and the call-put parity relation are derived.

Key concepts: Martingale (probability theory), Martingale pricing, Asian option, Arbitrage, Stochastic differential equation, Econometrics, Mathematical economics, Valuation of options

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