The distribution of the average of log-normal variables and Exact Pricing of the Arithmetic Asian Options: A Simple, closed-form Formula

Alghalith, Moawia (2019): The distribution of the average of log-normal variables and Exact Pricing of the Arithmetic Asian Options: A Simple, closed-form Formula.

Abstract

We introduce a simple, exact and closed-form formula for pricing the arithmetic Asian options. The pricing formula is as simple as the classical Black-Scholes formula. In doing so, we show that the distribution of the continuous average of log-normal variables is log-normal.

• Item Type: MPRA Paper
• Language: English
• Keywords: Arithmetic Asian option pricing, the arithmetic average of the price, average of log-normal, the Black-Scholes formula.
• Subjects: C - Mathematical and Quantitative Methods > C0 - General > C00 - General; C - Mathematical and Quantitative Methods > C0 - General > C01 - Econometrics; C - Mathematical and Quantitative Methods > C0 - General > C02 - Mathematical Methods; C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General; G - Financial Economics > G0 - General

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