Abstract - Moment matching approximation of Asian basket option prices

In this paper we propose some moment matching pricing methods for European-style discrete arithmetic Asian basket options in a Black & Scholes framework. We generalize the approach of [Curran 1994] and of [Deelstra, Liinev, Vanmaele 2004] in several ways. We create a framework that allows for a whole class of conditioning random variables which are normally distributed. We moment match not only with a lognormal random variable but also with a log-extended-skew-normal random variable. We also improve the bounds of [Deelstra, Diallo and Vanmaele 2008]. Numerical results are included and on the basis of our numerical tests, we explain which method we recommend depending on moneyness and time-to-maturity.

Griselda Deelstra
Room Amsterdam, HoF
Solvay Business School
22.Jun 2009

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