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.

Original languageEnglish
Pages (from-to)715-741
Number of pages27
JournalDecisions in Economics and Finance
Volume42
Issue number2
DOIs
Publication statusPublished - Dec 2019

ID: 48732967