Pricing and hedging Asian basket spread options

Asian options, basket options and spread options have been extensively studied in literature. However, few papers deal with the problem of pricing general Asian basket spread options. This paper aims to fill this gap. In order to obtain prices and Greeks in a short computation time, we develop approximation formulae based on comonotonicity theory and moment matching methods. We compare their relative performances and explain how to choose the best approximation technique as a function of the Asian basket spread characteristics. We also give explicitly the Greeks for our proposed methods. In the last section we extend our results to options denominated in foreign currency. Key words: Asian basket spread option, non-comonotonic sum, moment-matching, Shifted log-extended skew normal law.

• Type: Journal
• Year: 2010
• Where: JCAM
• Authors: Griselda Deelstra, Alexandre Petkovic, Michèle Vanmaele
• Keywords: Asian Basket Spread, Basket Spread Option, General Asian Basket, JCAM 2010