A Semi-Lagrangian Approach for American Asian Options under Jump Diffusion

@article{dHalluin2005ASA,
  title={A Semi-Lagrangian Approach for American Asian Options under Jump Diffusion},
  author={Yann d'Halluin and Peter A. Forsyth and George Labahn},
  journal={SIAM J. Scientific Computing},
  year={2005},
  volume={27},
  pages={315-345}
}
A semi-Lagrangian method is presented to price continuously observed fixed strike Asian options. At each timestep a set of one dimensional partial integral differential equations (PIDEs) is solved and the solution of each PIDE is updated using semi-Lagrangian timestepping. Crank-Nicolson and second order backward differencing timestepping schemes are studied. Monotonicity and stability results are derived. With low volatility values, it is observed that the non-smoothness at the strike in the… CONTINUE READING
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