Arithmetic Asian options are difficult to price and hedge as they do not have closed-form analytic solutions. The main theoretical reason for this difficulty is that the payoff depends on the <italic>finite sum</italic> of correlated lognormal variables, which is not lognormal and for which there is no...

In the United States, variable annuity contracts are mutual funds with tax-deferred investment gains containing an additional embedded put option with a stochastic maturity date. At death, the beneficiary - or estate - of the policy owner is assured to receive the greater of the account market...

In this paper we develop a better approximation for the price and hedging parameters of an arithmetic Asian option. We demonstrate that the distribution of the sum of a sequence of asset prices can be better approximated by the Reciprocal Gamma (as opposed to Lognormal) density function. In...

The financial economic No Arbitrage assumption implies that in a complete market the price of any derivative security is the discounted value of its payoff function integrated against the appropriate state-price density (SPD). For most exotic path dependent payoffs, it is quite difficult to...

Arithmetic Asian options are difficult to price and hedge as they do not have closed-form analytic solutions. The main theoretical reason for this difficulty is that the payoff depends on the finite sum of correlated lognormal variables, which is not lognormal and for which there is no...