A Quasi-Analytical Pricing Model for Arithmetic Asian Options: Numerical Evaluation

Sun et al (2008) developed a quasi-analytical pricing model for arithmetic Asian option bases on an approximate relationship between the geometric and arithmetic average of the log-normal random variable. We perform extensive numerical experiments to investigate the accuracy of the model. The numerical evidences show that the accuracy of the method depends on the number of dates at which the underlying asset prices are averaged given the maturity of the option, i.e. on the length of the interval between any two dates. The accuracy is desirable and the pricing errors are controllable when the number is sufficiently large or the interval is sufficiently short.