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 no more difficult to understand than their vanilla counterparts. Asian options are, however, difficult to price. Unlike their European counterparts which have an analytical solution in the form of the Black Scholes equation, no closed form solution exists for Asian Options when the asset is lognormally distrubuted.
An Asian option is an option type where the payoff depends on the average price of the underlying asset over a certain period of time as opposed to standard options American and European where the payoff depends on the price of the underlying asset at a specific point in time maturity. These options allow the buyer to purchase or sell the underlying asset at the average price instead of the spot price. Asian options have relatively low volatility due to the averaging mechanism. They are used by traders who are exposed to the underlying asset over some time, such as consumers and suppliers of commodities , etc.
Sep Today is the Chinese traditional Mid-Autumn Festival, also known as the Moon Festival, which is used to celebrate the end of the summer harvesting season, first of all, wish you happy everyday and achieve what you want. A pic of Mooncake Asian options are options where the payoff depends on the average price of the underlying asset during at least some part of the life of the option.