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This is a Quantitative Study study.

October 19, 2025Open Access

Asian Basket Spread Options: A New Approximation Based on Stochastic Taylor Expansions

Key Points

Closed analytical approximations were derived, improving the pricing accuracy for asian basket spread options.
The approach involves using a stochastic taylor expansion based on a log-normal proxy model for accuracy.
Unlike traditional methods, this approach eliminates the need for numerical integration or root solving.
The findings suggest a practical solution that enhances efficiency in pricing options under the black-scholes model.

Abstract

We present closed analytical approximations for the pricing of Asian basket spread options under the Black-Scholes model. The formulae are obtained by using a stochastic Taylor expansion around a log-normal proxy model and are found to be highly accurate for Asian and spread options in practice. Unlike other approaches, they do not require any numerical integration or root solving.

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Cite This Study

Fabien Le Floc’h (Tue,) studied this question.

synapsesocial.com/papers/68f43f09854d1061a58ac9ef https://doi.org/https://doi.org/10.48550/arxiv.2504.16011

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