Efficient BEM-Based Algorithm for Pricing Floating Strike Asian Barrier Options (with MATLAB® Code)

Abstract

This paper aims to illustrate how SABO (Semi-Analytical method for Barrier Option pricing) is easily applicable for pricing floating strike Asian barrier options with a continuous geometric average. Recently, this method has been applied in the Black–Scholes framework to European vanilla barrier options with constant and time-dependent parameters or barriers and to geometric Asian barrier options with a fixed strike price. The greater efficiency of SABO with respect to classical finite difference methods is clearly evident in numerical simulations. For the first time, a user-friendly MATLAB® code is made available here.

Keywords

• boundary element method
• finite difference method
• floating strike Asian options
• continuous geometric average
• barrier options