Non-Gaussian Closed Form Solutions for Geometric Average Asian Options in the Framework of Non-Extensive Statistical Mechanics

In this paper we consider pricing problems of the geometric average Asian options under a non-Gaussian model, in which the underlying stock price is driven by a process based on non-extensive statistical mechanics. The model can describe the peak and fat tail characteristics of returns. Thus, the description of underlying asset price and the pricing of options are more accurate. Moreover, using the martingale method, we obtain closed form solutions for geometric average Asian options. Furthermore, the numerical analysis shows that the model can avoid underestimating risks relative to the Black-Scholes model.