Pricing Arithmetic Asian Options under Hybrid Stochastic and Local Volatility

Figure 1

The leading order term 𝑃₀ and the first order correction term 𝑃₁ of the price of an arithmetic average Asian option are drawn for three different values of the elasticity of variance parameter 𝛾, where 𝑟=0.06, 𝜎=0.5, 𝑇=1, 𝐾₁=0, 𝐾₂=2, 𝑉₂=−0.01, and 𝑉₃=0.004.

(a) 𝑃₀

(b) 𝑃₁