Topic     :      An Exact Subexponential-Time Lattice Algorithm for

                      Asian Options

Speaker  :      Professor Yuh-Dauh Lyuu

                     (Dept. Computer Science & Information Engineering 

                      & Dept. Finance, National Taiwan University)

Time       :      May 12 (Wednesday)  2:00 - 3:10 pm

Abstract:
      Asian options are path-dependent derivatives that are very popular in the financial market. However, how to price them efficiently and accurately has been an intensively researched problem. There is no exact pricing formula to compute the price of the Asian option under the continuous-time model. Although approximate pricing formulas exist, they lack accuracy guarantees and are not applicable when the options can be exercised early.

      Asian options can also be priced on the lattice, which is a discrete random-walk version of the continuous-time model. But only exponential-time algorithms are currently known if such options are to be priced on the lattice without approximations. Although efficient approximation methods are available, they again lack accuracy guarantees in general. This paper proposes a novel lattice structure for pricing Asian options. The resulting pricing algorithm is exact (i.e., without approximations) and runs in subexponential time. This is the first exact lattice algorithm to break the long-standing exponential-time barrier.  As the proposed lattice converges to the continuous-time model, it generates option prices that converge to the option value under the continuous-time model.

Place      : 

Lecture Room B , 

National Center for Theoretical Sciences,
4th Floor, The 3rd General Building,

National Tsing Hua University, Hsinchu.