NO ARBITRAGE VALUATION OF ASIAN OPTIONS - Research Proposal - Essay Example

Under financial discussions & research, options fall under a particular style or family. Theoretically speaking, the style or the family of options refers to a class that signifies the category into which that particular option comes under. The options are generally verified & studied by analyzing the dates on which these options may be exercised. Such options come under the purview of the European & American Styles. There are many more types of options available. The similarity between all of them is that they come under the ‘Vanilla Options’ wherein, the options are evaluated on the basis of the payoff.

There are also numerous Non-Vanilla options such as the Russian & the Asian options. The proposed research is aimed at studying the various arbitrage options that fall under the Asian option. Under the proposed research, there are a number of issues that are planned to be studied. The first & the foremost would be to perform an analysis & assessment of the various techniques that have been devised for assessing the Asian option. The study of these techniques is very important in order to assess each one for its effectiveness & compare & contrast between all of them for their numerous features & capabilities.

In general, it’s a well known fact that the values of an Asian option is obtained by evaluating a Partial Differential Equation (PDE). In fact, this aspect is central to all the techniques that are proposed to be studied. As is common with other options, the analysis of an Asian option is made by calculating the payoff that is usually given by the average price of the stock (asset) over a certain period of time. The reason why this topic is being studied is that though there are numerous techniques available for determining the payback, none of them is able to provide a clear-cut & a fully observable solution.

This is because the evaluation of the Partial