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2009•RePEc: Research Papers in EconomicsRequires access

Pricing Average Options under Stochastic Volatility Models

Kenichiro Shiraya, Akihiko Takahashi, Masashi Toda

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Abstract

This paper derives an approximation formula for average options under two stochastic volatility models such as Heston and Lambda-SABR models by using an asymptotic expansion method. Moreover, numerical examples with various parameters some of which are obtained by calibration to WTI futures options prices in NYMEX confirm the effectiveness of our formula.

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What this paper is about

This paper derives an approximation formula for average options under two stochastic volatility models such as Heston and Lambda-SABR models by using an asymptotic expansion method. Moreover, numerical examples with various parameters some of which are obtained by calibration to WTI futures options prices in NYMEX confirm the effectiveness of our formula.

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OpenAlex reports 3 citations for this work. Citation counts describe recorded attention and do not establish research quality.

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Available abstract

This paper derives an approximation formula for average options under two stochastic volatility models such as Heston and Lambda-SABR models by using an asymptotic expansion method. Moreover, numerical examples with various parameters some of which are obtained by calibration to WTI futures options prices in NYMEX confirm the effectiveness of our formula.

Key concepts: SABR volatility model, Stochastic volatility, Futures contract, Heston model, Volatility (finance), Valuation of options, Implied volatility, Econometrics

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