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The Asian Option Pricing when Discrete Dividends Follow a Markov-Modulated Model

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Document pages: 14 pages

Abstract: This paper is concerned with the pricing problem of the discretearithmetic average Asian call option while the discrete dividends follow geometricBrownian motion. The volatility of the dividends model depends on the Markov-Modulatedprocess. The binomial tree method, in which a more accurate factor has beenused, is applied to solve the corresponding pricing problem. Finally, anumerical example with simulations is presented to demonstrate theeffectiveness of the proposed method.

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