TY - JOUR
T1 - Pricing of average value options versus European options with stochastic interest rate
AU - Ortiz Ramírez, Ambrosio
AU - Martínez Palacios, María Teresa V.
N1 - Publisher Copyright:
© 2016 Universidad Nacional Autónoma de México, Facultad de Contaduría y Administración
PY - 2016/10/1
Y1 - 2016/10/1
N2 - This paper proposes a methodology to obtain the price of an Asian option with underlying average through Monte Carlo simulation. It is assumed that the interest rate is driven by a mean reversion process of Vasicek and CIR type with parameters calibrated by maximum likelihood. The simulation includes the quadratic resampling which reduces the use of computational resources, in particular the method improves the generation of variance covariance matrix. The proposed methodology is applied in the valuation of options on the price of AMXL. The results show that by comparing prices of European options, with both simulated and published by MexDer with their Asian counterparts, Asian options prices are lower in the case of call and put options in the money. For put options simulated prices were lower in all cases. Moreover, it was also found that the difference increases as the time to maturity of the option increases.
AB - This paper proposes a methodology to obtain the price of an Asian option with underlying average through Monte Carlo simulation. It is assumed that the interest rate is driven by a mean reversion process of Vasicek and CIR type with parameters calibrated by maximum likelihood. The simulation includes the quadratic resampling which reduces the use of computational resources, in particular the method improves the generation of variance covariance matrix. The proposed methodology is applied in the valuation of options on the price of AMXL. The results show that by comparing prices of European options, with both simulated and published by MexDer with their Asian counterparts, Asian options prices are lower in the case of call and put options in the money. For put options simulated prices were lower in all cases. Moreover, it was also found that the difference increases as the time to maturity of the option increases.
KW - Asian options
KW - Geometric average
KW - Mathematical modelling
KW - Monte Carlo simulation
UR - http://www.scopus.com/inward/record.url?scp=84979687790&partnerID=8YFLogxK
U2 - 10.1016/j.cya.2016.06.002
DO - 10.1016/j.cya.2016.06.002
M3 - Artículo
AN - SCOPUS:84979687790
SN - 0186-1042
VL - 61
SP - 629
EP - 648
JO - Contaduria y Administracion
JF - Contaduria y Administracion
IS - 4
ER -