Short Maturity Asian Options for the CEV Model

Abstract

We present a rigorous study of the short maturity asymptotics for Asian options with continuous-time averaging, under the assumption that the underlying asset follows the Constant Elasticity of Variance (CEV) model. We present an analytical approximation for the Asian options prices which has the appropriate short maturity asymptotics, and demonstrate good numerical agreement of the asymptotic results with the results of Monte Carlo simulations and benchmark test cases for option parameters relevant in practical applications.

37 pages, 4 figures

References in corpus (1)

• Small-time asymptotics for a general local-stochastic volatility model with a jump-to-default: curvature and the heat kernel expansion