Pricing Asian options via compound gamma and orthogonal polynomials

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dc.contributor.authorAprahamian, Hrayer
dc.contributor.authorMaddah, Bacel S.
dc.contributor.departmentDepartment of Industrial Engineering and Management
dc.contributor.facultyMaroun Semaan Faculty of Engineering and Architecture (MSFEA)
dc.contributor.institutionAmerican University of Beirut
dc.date.accessioned2025-01-24T11:31:43Z
dc.date.available2025-01-24T11:31:43Z
dc.date.issued2015
dc.description.abstractWe develop two approximations (CG3 and CGn) for pricing arithmetic Asian options. Approximation CG3 utilizes a compound gamma distribution of the price average. It is calibrated by analytically matching the first three moments. Approximation CG3 outperforms many other existing approximations. Approximation CGn expands CG3 by utilizing the concept of orthogonal polynomials and matches n > 3 moments. It produces near-exact results, within 1 s, when volatility and maturity are not too high. Two useful insights of our work are (i) demonstrating that orthogonal polynomials can be used effectively to improve accuracy and (ii) showing that matching higher moments is beneficial. © 2015 Elsevier Inc. All rights reserved.
dc.identifier.doihttps://doi.org/10.1016/j.amc.2015.04.041
dc.identifier.eid2-s2.0-84929119984
dc.identifier.urihttp://hdl.handle.net/10938/27542
dc.language.isoen
dc.publisherElsevier Inc.
dc.relation.ispartofApplied Mathematics and Computation
dc.sourceScopus
dc.subjectAnalytical approximation
dc.subjectAsian options
dc.subjectCompound gamma distribution
dc.subjectExotic options
dc.subjectOrthogonal polynomials
dc.subjectCosts
dc.subjectPolynomials
dc.subjectProbability distributions
dc.subjectExotic option
dc.subjectGamma distribution
dc.subjectOrthogonal polynomial
dc.subjectOrthogonal functions
dc.titlePricing Asian options via compound gamma and orthogonal polynomials
dc.typeArticle

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