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. In the s Mark Standish was with the London-based Bankers Trust working on fixed income derivatives and proprietary arbitrage trading. David Spaughton worked as systems analyst in the financial markets with Bankers Trust since when the Bank of England first gave licences for banks to do foreign exchange options in the London market.
Asian option valuation - Breaking Down Finance
Asian options differ in payoff calculation from European and American option. The payoff for an Asian option equals the average price realized minus the strike call or the strike minus the average price realized. Due to the odd payoff of an Asian option, it can not be valued through an analytical formula. However they can be valued through a simulation experiment.
FX Asian Option
Back To Product List. An Asian option or average option is a special type of option contract where the payoff depends on the average price of the underlying asset over a certain period of time. The payoff is different from the case of a European option or American option, where the payoff of the option contract depends on the price of the underlying stcok at exercise date.
Back To Product List. Asian FX options allow the buyer to purchase or sell the underlying foreign exchange rate at the average rate instead of the spot rate. Asian options are commonly seen options over the OTC markets. Average rate options are less expensive than regular options and are arguably more appropriate than regular options for meeting some of investment needs. Average can be calculated in a number of ways daily, weekly, monthly, etc.