On the Performance of the Comonotonicity Approach for Pricing Asian Option in Some Benchmark Models from Equities and Commodities

Abstract

In this paper we investigate the applicability of the Albrecher et. al. (2005) comonotonicity approach in the context of various benchmark models for equities and commodities. Instead of classical Levy models as in Albrecher et. al. we focus on the Heston stochastic volatility model, the constant elasticity of variance (CEV) model and Schwartz' 1997 stochastic convenience yield model. We show that the method delivers rather tight upper bounds for the prices of Asian Options in these models and as a by product delivers super-hedging strategies which can be easily implemented.