Pricing Asian call option with average strike using a non-uniform grid
Tanvi Rai, Siddhartha Pratim Chakrabarty · Journal of Interdisciplinary Mathematics · 2013
The problem of pricing Asian call option with average strike on a non-uniform grid is examined. The backward partial differential equation (PDE) along with the final and boundary conditions for an Asian call option with average strike is presented. A Crank Nicolson Implicit Method based scheme on a non-uniform grid for both spatial and temporal direction is derived, making use of a transformation to generate the non-uniform grid. The scheme is implemented to obtain the price of the Asian option for various values of drift and volatility. The results show a close match with the values obtained using Monte Carlo simulation and numerical PDE methods on uniform grid. The values obtained using the non-uniform grid (as compared to uniform grid) were closer to the values from Monte-Carlo simulation for smaller volatilities, thereby indicating that non-uniform grid could lead to more accurate results in case of smaller volatilities.