An Efficient Quasi-Monte Carlo Simulation for Pricing Asian Options under Heston's Model

Abstract

The market for path-dependent options has been expanded considerably in the financial industry. The approach for pricing the path-dependent options in this thesis is developed by Kolkiewicz (2014) based on a quasi-Monte Carlo simulation with Brownian bridges conditioning on both their terminal values and the integrals along the paths. The main contribution of this essay is an extension of the above method to price Asian options under a stochastic volatility model. A Matlab implementation of generating multi-dimensional independent Brownian paths is also included as part of the contribution. The result can be used to price path-dependent options, such as an Asian option under both stochastic interest rate model and/or stochastic volatility model. A comparison with regular Monte Carlo simulation is provided.