Abstract
The 1993 Laplace transform approach of Geman and Yor is a celebrated advance
in valuing Asian options. Its insights are fundamental from both a mathematical
and a financial perspective. In this paper, we discuss two observations
regarding the financial relevance of its results. First, we show that the Geman
and Yor Laplace transform is not that of an Asian option price, as reported in
Geman and Yor and other papers. We nonetheless show how the Geman and Yor
Laplace transform can be used to obtain the price of an Asian option. Second,
we find that following Geman and Yor these Laplace transfoms are available only
if the risk-neutral drift is not less than half the squared volatility. Using
complex analytic techniques, we lift this restriction, thus extending the
financial applicability of the Laplace transform approach.
Users
Please
log in to take part in the discussion (add own reviews or comments).