The valuation of arithmetic Asian options is known to be difficult as they do not have closed analytic solutions. A lot of studies have been developed to determine the fair values of the options. This thesis first reviews some representative valuation models, i.e. analytic and numerical methods. Option values from each model are compared against Monte Carlo Simulation results to determine its accuracy. The accuracy test is applied to both continuous and discrete average Asian options. The thesis also provides two case studies on the valuations for Asian option based Equity Linked Notes.
The result of this study shows Curran’s analytic approximation and Vecer’s finite difference method are accurate and fast in both continuously and discretely sampled cases. Also it is shown that some ELNs with unknown fee structures are better to be valued in terms of total issuing cost.
