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The Asian Option Pricing when Discrete Dividends Follow a Markov-Modulated Model
School of Science, Donghua University, Shanghai, China
School of Science, Donghua University, Shanghai, China
School of Electronic and Electrical Engineering, Shanghai University of Engineering Science, Shanghai, China
School of Science, Donghua University, Shanghai, China
School of Science, Donghua University, Shanghai, China
- 1 School of Science, Donghua University, Shanghai, China
- 2 School of Science, Donghua University, Shanghai, China
- 3 School of Electronic and Electrical Engineering, Shanghai University of Engineering Science, Shanghai, China
- 4 School of Science, Donghua University, Shanghai, China
- 5 School of Science, Donghua University, Shanghai, China
Open Journal of Statistics·Volume 07 (2017)·Pages 1067–1080·Published 15 November 2017·DOI10.4236/ojs.2017.76074
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Abstract
This paper is concerned with the pricing problem of the discrete arithmetic average Asian call option while the discrete dividends follow geometric Brownian motion. The volatility of the dividends model depends on the Markov-Modulated process. The binomial tree method, in which a more accurate factor has been used, is applied to solve the corresponding pricing problem. Finally, a numerical example with simulations is presented to demonstrate the effectiveness of the proposed method.
KeywordsArithmetic Average Asian Call OptionDiscrete DividendsGeometric Brownian MotionMarkov-Modulated VolatilityBinomial Tree
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