Efficiently pricing European-Asian options-ultimate implementation and analysis of the AMO algorithm

Akiyoshi Shioura, Takeshi Tokuyama

Research output: Contribution to journalArticle

Abstract

Some experimental results to illustrate the performance of randomized approximation algorithm and its derandomized version, are presented. The quality of the option price computed by algorithms are compared with those by other approximation algorithms. The full-path method is implemented to compute the exact price, and approximation algorithms such as the naive Monte Carlo method (MC), the AMO algorithms (AMO-LB, AMO-UB), the DHL algorithms, and the OSST algorithm. A naive method for computing the exact price of European-Asian options, called the full-path method, enumerates all paths in the binomial tree model. The full path method requires an exponential time since there are exponential number of paths in the binomial tree. The error bound of the Mount Carlo method depends volatility of the stock price when a polynomial number of samples are taken by naive sampling.

Original languageEnglish
Pages (from-to)213-219
Number of pages7
JournalInformation Processing Letters
Volume100
Issue number6
DOIs
Publication statusPublished - 2006 Dec 31

Keywords

  • Analysis of algorithms
  • Approximation algorithms
  • European-Asian option
  • Option pricing
  • Randomized algorithms

ASJC Scopus subject areas

  • Theoretical Computer Science
  • Signal Processing
  • Information Systems
  • Computer Science Applications

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