Volume 73, Number 1, 25-39, DOI: 10.1007/s00607-004-0066-2

Numerical Computation of an Integral Representation for Arithmetic-Average Asian Options

K. Petras

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Abstract

The integrands in M. Schröderrsquos integral representation for the price of Asian options are highly oscillatory yielding cancellations of many digits in the integration. Furthermore, obtaining multiple precision function values is costly. Numerical integration is nevertheless possible by using Hermitian quadrature formulas, techniques of automatic differentiation and explicit error bounds combined with interval arithmetic.

Keywords  Validated integration - Hermitian quadrature formulas - automatic differentiation - Asian options

AMS Subject Classifications: Primary 65D30; Secondary 65-04, 65D25, 65G20, 91B28.
The author is supported by a Heisenberg scholarship of the Deutsche Forschungsgemeinschaft.

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