RECURSIVE FORMULA FOR ARITHMETIC ASIAN OPTION PRICES

Abstract

I derive a recursive formula for arithmetic Asian option prices with finite observation times in semimartingale models. The method is based on the relationship between the risk-neutral expectation of the quadratic variation of the return process and European option prices. The computation of arithmetic Asian option prices is straightforward whenever European option prices are available. Applications with numerical results under the Black-Scholes framework and the exponential Levy model are proposed.