Abstract
We propose an efficient and accurate randomized approximation algorithm for pricing a European-Asian option on the binomial tree model. For an option with the strike price X on an n-step binomial tree and any positive integer k, our algorithm runs in O(kn 2) time with the error bound O(X/k) which is independent of n. Our algorithm is a modification of the approximation algorithm developed by Aingworth, Motwani, and Oldham (2000) into a randomized algorithm, which improves the accuracy theoretically as well as practically.
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Shioura, A., Tokuyama, T. (2005). Efficiently Pricing European-Asian Options — Ultimate Implementation and Analysis of the AMO Algorithm. In: Megiddo, N., Xu, Y., Zhu, B. (eds) Algorithmic Applications in Management. AAIM 2005. Lecture Notes in Computer Science, vol 3521. Springer, Berlin, Heidelberg. https://doi.org/10.1007/11496199_32
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DOI: https://doi.org/10.1007/11496199_32
Publisher Name: Springer, Berlin, Heidelberg
Print ISBN: 978-3-540-26224-4
Online ISBN: 978-3-540-32440-9
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