Analytical solutions to the arithmetic asian options pricing model using lie symmetry methods
Loading...
Date
2025-07
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
National University of Lesotho
Abstract
This dissertation explores the use of Lie symmetry methods to find analytical solutions for arithmetic Asian options; path-dependent financial derivatives widely used for risk management in commodity markets. The pricing problem is formulated as a partial differential equation (PDE) involving the asset price, time, and the running average of the asset price. Lie symmetry analysis is applied to the PDE to compute its infinitesimal generators, determine an optimal system of one-dimensional sub-algebras, and perform symmetry reductions. Each reduced PDE obtained through this process also admits further symmetries, allowing for successive reductions and the construction of exact invariant solutions. Techniques such as Riccati reductions and the Frobenius method are employed to solve the resulting ordinary differential equations (ODEs). The study further examines the influence of key financial parameters (volatility, interest rate, and time to maturity) on the structure and behavior of the pricing solutions. The findings contribute to the theoretical understanding of Asian option pricing and provide analytical benchmarks for validating numerical approaches.
Description
Master's degree thesis