A Quick Algorithm for Pricing European Average Options

1991/09/01 by Stuart M. Turnbull, Lee MacDonald Wakeman, Lee Macdonald Wakeman · 6 citations
Economics, Econometrics and Finance · #Stochastic processes and financial applications #Financial Risk and Volatility Modeling #Credit Risk and Financial Regulations

paper · doi:10.2307/2331213

Abstract

An algorithm is described that prices European average options. The algorithm is tested against Monte Carlo estimates and is shown to be accurate. The speed of the algorithm is comparable to the Black-Scholes algorithm. A closed-form solution is derived for European geometric average options.

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