A PDE APPROACH TO ASIAN OPTIONS - ANALYTICAL AND NUMERICAL EVIDENCE

We first derive a one-state-variable partial differential equation, ea sy to implement, which characterizes the price of a European type Asia n option. This result is explained and related to previous literature. We then derive new results on the hedging of an Asian option and prop ose analytical and numerical analysis on the comparison between Asian and European options. Our methodology which applies to ''fixed-strike' ' Asian options as well as to ''floating-strike'' Asian options comple tes and clarifies various results in the literature. In this paper we focus on ''backward-starting'' Asian options. Our approach is quite ge neral however, and we explain how to adapt our main results to the cas e of ''forward-starting'' Asian options.