Advances and Applications in Statistics
Volume 13, Issue 1, Pages 19 - 39
(October 2009)
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A ROCKET DISCARDING ALGORITHM FOR THE VALUATION OF ASIAN RESET OPTIONS
Yue-Xian Lin (Taiwan)
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Abstract: The purpose of this paper is twofold. First, we present an algorithm that is general enough to encompass a complex family of multiple-resets, arbitrary reset periods with Asian-typed reset options that permit early exercises. Secondly, we provide numerical experiments to examine the efficiency of this procedure. In our specialized vectorizing lattice device, the permutation scheme of m-day moving average prices required by the RDA procedure is shown to produce a convergent subsequence inside the vertex node of the main tree. Thus the procedure is well defined. In addition to its satisfactory efficiency, the RDA procedure also provides a set of stable hedging parameters, which might be beneficial for market practitioners to enhance their hedging activities. |
Keywords and phrases: reset, lattice approach, Asian, moving-average, path-dependent. |
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