We propose a model for pricing both European and American Asian options based on the arithmetic average of the underlying asset prices. Our approach relies on a binomial tree describing the underlying asset evolution. At each node of the tree we associate a set of representative averages chosen...

We develop a pricing algorithm for US-style period-average reset options written on an underlying asset which evolves in a Cox-Ross-Rubinstein (CRR) framework. The averaging feature of such an option on the reset period makes the price valuation problem computationally unfeasible because the...

We collect simple and pragmatic exact formulae for the convexity adjustment of irregular interest rate cash flows as Libor-in-arrears or payments of a swap rate (CMS rate) at an irregular date. The results are compared with the results of an approximative approach available in the popular...

When pricing the convexity effect in irregular interest rate derivatives such as, e.g., Libor-in-arrears or CMS, one often ignores the volatility smile, which is quite pronounced in the interest rate options market. This note solves the problem of convexity by replicating the irregular interest...

Using option prices the expectations of the market participants concerning the underlying asset can be extracted as well as the uncertainty surrounding these expectations. In this paper a mixture of lognormal density functions will be assumed to analyze options on three-month Euribor futures for...