An Asian option or average value option is a special type of option contract. For Asian options the payoff is determined by the average underlying price over some pre-set period of time. This is different from the case of the usual European option and American option , where the payoff of the option contract depends on the price of the underlying instrument at exercise; Asian options are thus one of the basic forms of exotic options. There are two types of Asian options, the Fixed Strike-where averaging price is used in place of underlying price, and Fixed Price-where averaging price is used in place of strike. Because of the averaging feature, Asian options reduce the volatility inherent in the option; therefore, Asian options are typically cheaper than European or American options.
Asian option - Wikipedia
This articles explores Asian options, and offers an Excel spreadsheet based on geometric and arithmetic averages. Of the many types of exotic options that are available for investors, Average Rate Options or, as they are better known, Asian Options are some of the most practical. Asian options are priced based on the average price of the underlying instrument. Both the strike value and expiration value can be calculated from the average value over a period of time.
Asian options are options where the payout is determined by the average of prices at a set interval over a certain maturity. Lets look at an Equity example the results would be the same for other underlyings such as commodities or foreign exchange. Using a Turnball-Wakeman approximation we calculate the price and delta, and for comparison using Black-Scholes to show the result for a regular European call. Not how much less the Asian call is to a regular call option. Asian Call.
Asian option also known as average price option is an option whose payoff is determined with respect to the arithmetic or geometric average price of the underlying asset over the term of the option. While the payoff of a standard American and European option depends on the price of the underlying asset at a specific point of time i. There are two types of Asian options with respect to the method of averaging: in arithmetic Asian option, the arithmetic average of the price of the underlying is used in payoff calculations; while in geometric Asian options, geometric average is used.