PRICING ASIAN OPTIONS FOR JUMP DIFFUSION

We construct a sequence of functions that uniformly converge (on compact sets) to the price of an Asian option, which is written on a stock whose dynamics follow a jump diffusion. The convergence is exponentially fast. We show that each element in this sequence is the unique classical solution of a parabolic partial differential equation (not an integro-differential equation). As a result we obtain a fast numerical approximation scheme whose accuracy versus speed characteristics can be controlled. We analyze the performance of our numerical algorithm on several examples.

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