The pricing of step options under the nonlinear Black-Scholes model
SUN Yu-dong1, SHI Yi-min2, TONG Hong1
1. School of Science, Guizhou Minzu University, Guiyang 550025, China
2. Department of Applied Mathematics, Northwestern Polytechnical University, Xi’an 710072, China
Abstract In this paper, the pricing problems of geometric average Asian options are studied under the nonlinear Black-Scholes model. Firstly, the partial differential equations for the Asian options are transformed into a series of parabolic equations with constant coefficients by the perturbation method of single-parameter. Secondly, the approximate pricing formulae of the geometric average Asian options are given by solving those parabolic equations with constant coefficients. Finally, the error estimates of the approximate solutions are given by using Green function.
Received: 26 September 2015
Published: 16 May 2018
SUN Yu-dong, SHI Yi-min, TONG Hong. The pricing of step options under the nonlinear Black-Scholes model. Applied Mathematics A Journal of Chinese Universities, 2016, 31(3): 262-272.
