A Quick Algorithm for Pricing European Average Options

An algorithm is described that prices European average options. The algorithm is tested against Monte Carlo estimates and is shown to be accurate. The speed of the algorithm is comparable to the Black-Scholes algorithm. A closed-form solution is derived for European geometric average options.

Saved in:
Bibliographic Details
Published in:Journal of financial and quantitative analysis 1991-09, Vol.26 (3), p.377-389
Main Authors: Turnbull, Stuart M., Wakeman, Lee Macdonald
Format: Article
Language:English
Subjects:
Algorithms
Approximation
Arithmetic
Arithmetic mean
Average prices
Call options
Comparative analysis
Estimate reliability
Europe
Financial instruments
Option pricing
Prices
Put & call options
Quantitative analysis
Securities prices
Stock prices
Strike prices
Studies
Citations: Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:An algorithm is described that prices European average options. The algorithm is tested against Monte Carlo estimates and is shown to be accurate. The speed of the algorithm is comparable to the Black-Scholes algorithm. A closed-form solution is derived for European geometric average options.
ISSN:0022-1090
1756-6916
DOI:10.2307/2331213