Pricing of geometric Asian options in the Volterra-Heston model

Florian Aichinger () and Sascha Desmettre ()
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Florian Aichinger: Johannes Kepler University of Linz
Sascha Desmettre: Johannes Kepler University of Linz

Review of Derivatives Research, 2025, vol. 28, issue 1, No 5, 30 pages

Abstract: Abstract Geometric Asian options are a type of option where the payoff depends on the geometric mean of the underlying asset over a certain period of time. This paper is concerned with the pricing of such options for the class of Volterra-Heston models, covering the rough Heston model. We are able to derive semi-closed formulas for the prices of geometric Asian options with fixed and floating strikes for this class of stochastic volatility models. These formulas require the explicit calculation of the conditional joint Fourier transform of the logarithm of the stock price and the logarithm of the geometric mean of the stock price over time. Linking our problem to the theory of affine Volterra processes, we find a representation of this Fourier transform as a suitably constructed stochastic exponential, which depends on the solution of a Riccati-Volterra equation. Finally, we provide a numerical study for our results in the rough Heston model.

Keywords: Volterra-Heston model; Rough volatility; Asian options; Options pricing; Fourier inversion method; Affine Volterra processes; 45D05; 60B15; 60L20; 91G20 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s11147-025-09211-w

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