An Actuarial Approach To Asian Option Pricing And Application

Since 1980s, financial derivatives have been widely developed in international finance. The creation and transaction of financial derivatives have been the main part of the international financial innovations. Options have important economic functions, which can elude market risk, increase market fluidity, decrease transaction costs, and improve transaction efficiency. Exotic Option is for the sake of the market need and the oneself business development, Asian options is one of the normal exotic Option , it is a kind of strong path dependence options, whether the Asian option would be performed, which depends on the stock average price of the period [0,T] .The average price can reduce the fluctuation of stock, so the Asian Option is cheaper than a similar normal option , therefore it is specially popular in the currency and the commodity market.But the traditional pricing methods are almost based on the assumption of no arbitrage, well balanced and complete market, then in 1998 Mogens Bladt and Tina Hviid Rydberg put forward the Actuarial Approach option price .In that article, they consider that pricing a call or put option by turning the pricing problem into an equivalent insurance or a fair premium determination and the conclusion is based on notany assumption, that approach is valid even when an equilibrium price measure dose not exist (arbitrage, non-equilibrium)or is not unique(incompleteness).This paper deals with some option pricing problems in finance with all kinds of factors, we get the Asian option pricing by the Actuarial Approach method, then we get the geometry and the arithmetic Average Rate Option pricing model .The separation in the ownership and the management power in the modern business enterprise system, for pursuing effect to maximize, the owner usually adopt some economy incitements, because the price of Asian Option lies on the average price of underlying asset ,the price is difficult to be operated man-made by some one , especially at the mature time .This character make Asian Option widely applied in the financial markets. Besides application of Asian option to the Stock-options Incentive for executive will be in favor of the improvement of this system, by these study we trying to obtain some outcomes toguide financial practice and make it easy to be operated.The essay mainly answers the following problems:(DWe point out the basic ideas of an actuarial approach, assumption that stock certificate combination of the structure calm insurance, getting basic option with not any bonus pricing.(2)Asian option is one of strong path dependence options, Asian option pricing with an actuarial approach is turning option pricing into an equivalent insurance or a fair premium determination, the approach is valid even when arbitrage exists and the market is incompleteness and un-equilibrium, then we get the geometry and the arithmetic Average Rate Option price.(3)To studying the Stock option stimulation system, as the price of Asian option is one of the strong average price options, it is difficult manipulated by the factitiousness, particularly at the mature time. The application of Asian option in the incentive system, can make the system in the business enterprise get a more valid function.