On lower and upper bounds for Asian-type options: a unified approach

TL;DR

This paper introduces a unified method for deriving accurate upper and lower bounds for Asian-type options, including VWAP options, applicable in various financial models with time-dependent interest rates.

Contribution

It presents a novel unified approach for bounding Asian options prices, covering both continuous and discrete-time models with time-dependent interest rates.

Findings

Bounds are shown to be accurate through numerical examples.

Method applies to both continuous and discrete-time frameworks.

Approach accommodates time-dependent interest rates.

Abstract

In the context of dealing with financial risk management problems it is desirable to have accurate bounds for option prices in situations when pricing formulae do not exist in the closed form. A unified approach for obtaining upper and lower bounds for Asian-type options, including options on VWAP, is proposed in this paper. The bounds obtained are applicable to the continuous and discrete-time frameworks for the case of time-dependent interest rates. Numerical examples are provided to illustrate the accuracy of the bounds.