A study on pricing barrier geometric average Asian options with Heston model

Abstract

The Heston model is a stochastic volatility model, which is a system of stochastic differential equations, used to describe the evolution of the volatility of the underlying asset. In this work, we study how to price the knock-out barrier geometric average Asian call options whose underlying asset follow the Heston model. We use the Monte Carlo approach to price the option by simulating sample paths of the underlying asset price process and calculating the present value of the expected payoff of the option. A sensitivity analysis of some parameters in the model is also provided.