An exact subexponential-time lattice algorithm for Asian options

Tian-Shyr Dai, Yuh-Dauh Lyuu

Research output: Contribution to journalArticlepeer-review


Asian options are popular financial derivative securities. Unfortunately, no exact pricing formulas exist for their price under continuous-time models. Asian options can also be priced on the lattice, which is a discretized version of the continuous-time model. But only exponential-time algorithms exist if the options are priced on the lattice without approximations. Although efficient approximation methods are available, they lack accuracy guarantees in general. This paper proposes a novel lattice structure for pricing Asian options. The resulting pricing algorithm is exact (i.e., without approximations), converges to the value under the continuous-time model, and runs in subexponential time. This is the first exact, convergent lattice algorithm to break the long-standing exponential-time barrier.
Original languageAmerican English
Pages (from-to)23-39
Number of pages17
JournalActa Informatica
Issue number1
StatePublished - Apr 2007


  • option pricing
  • Binomial model
  • Path-dependent derivative
  • Asian option
  • complexity


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