Fourier Transform of the Continuous Arithmetic Asian Options PDE

Abstract EN

Price of the arithmetic Asian options is not known in a closed-form solution, since arithmetic Asian option PDE is a degenerate partial differential equation in three dimensions.

In this work we provide a new method for computing the continuous arithmetic Asian option price by means of partial differential equations.

Using Fourier transform and changing some variables of the PDE we get a new direct method for solving the governing PDE without reducing the dimensionality of the PDE as most authors have done.

We transform the second-order PDE with nonconstant coefficients to the first order with constant coefficients, which can be solved analytically.