CRIEFF Discussion Paper
Number 0910
Pricing and Hedging of Asian Options: Quasi-Explicit Solutions via Malliavin Calculus
Zhaojun Yang,Christian-Oliver
Ewald and Olaf Menkens
Abstract
We use Malliavin
calculus and the Clark-Ocone formula to derive the hedging
strategy of an arithmetic Asian Call option in general
terms.
Furthermore we derive an expression for the
density of the integral over time of a geometric Brownian motion, which allows
us to express hedging strategy and price of the Asian option as an analytic, that
is closed form, expression. Numerical computations which are based on this
expression are provided.
JEL
Classifications: G12; G13
Keywords: Asian options, option
pricing, hedging, Malliavin calculus.
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