The Performance of Analytical Approximations for the Computation of Asian Quanto-Basket Option Prices

Jean-Yves Datey, Geneviève Gauthier, Jean-Guy Simonato
2003 Multinational Finance Journal  
An option contract now commonly encountered is the Asian quanto-basket option. This contract is useful for risk managers willing to participate to the return of an industrial sector with an international exposure without the foreign exchange risk exposition. Although the price of such contracts can be obtained very accurately using Monte Carlo simulation, market participants prefer faster but less accurate analytical approximations. This paper thus examines the precision of three different
more » ... tical approximations available to price Asian quanto-basket options. The results of a comprehensive simulation experiment performed on a large test pool of option contracts reveal that the approximations based on the reciprocal gamma and Johnson-type densities are in general the most accurate.
doi:10.17578/7-1/2-3 fatcat:jqi7n5noqzdrbdqae4ij2tlhm4