Semi-analytical prices for lookback and barrier options under the Heston model

Luca De Gennaro Aquino () and Carole Bernard ()
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Luca De Gennaro Aquino: Université Grenoble Alpes ComUE
Carole Bernard: Université Grenoble Alpes ComUE

Decisions in Economics and Finance, 2019, vol. 42, issue 2, No 15, 715-741

Abstract: Abstract Under the Heston stochastic volatility model, we derive semi-analytical formulas for the prices of path-dependent options with payoffs linked to the maximum or minimum value of the underlying asset price over a certain period of time. In particular, we obtain prices of lookback and barrier options in the Heston model, but the methodology applies more generally. By conditioning with respect to the variance path, we obtain pricing formulas that can be related to their counterparts in the Black–Scholes model.

Keywords: Derivatives pricing; Lookback options; Barrier options; Path-dependent options; Heston model; Stochastic volatility (search for similar items in EconPapers)
JEL-codes: C65 G13 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (5)

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DOI: 10.1007/s10203-019-00254-x

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