Working Papers

Quantitative Finance

J-series

Date:

Number:CARF-J-059

Pricing Average Options under Stochastic Volatility Models

Author:Kenichiro Shiraya, Akihiko Takahashi, Masashi Toda

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.