Abstract
Asian options are the popular second generation derivative products and embedded in many structured notes to enhance upside performance. The embedded options, as a result, usually have a long duration. The movement of interest rates becomes more important in pricing such long-dated options. In this paper, the pricing of Asian options under stochastic interest rates is studied. Assuming Hull and White model for the interest rates, a closed-form formula for geometric-average options is derived. As a by-product, pricing formula is also given for plan-vanilla options under stochastic interest rates.
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