Are you an EPFL student looking for a semester project?
Work with us on data science and visualisation projects, and deploy your project as an app on top of Graph Search.
Concept
Asian option
Summary
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: fixed strike, where averaging price is used in place of underlying price; and fixed price, where averaging price is used in place of strike.
One advantage of Asian options is that these reduce the risk of market manipulation of the underlying instrument at maturity. Another advantage of Asian options involves the relative cost of Asian options compared to European or American options. 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. This can be an advantage for corporations that are subject to the Financial Accounting Standards Board revised Statement No. 123, which required that corporations expense employee stock options.
In the 1980s Mark Standish was with the London-based Bankers Trust working on fixed income derivatives and proprietary arbitrage trading. David Spaughton worked as a systems analyst in the financial markets with Bankers Trust since 1984 when the Bank of England first gave licences for banks to do foreign exchange options in the London market. In 1987 Standish and Spaughton were in Tokyo on business when "they developed the first commercially used pricing formula for options linked to the average price of crude oil." They called this exotic option the Asian option because they were in Asia.
There are numerous permutations of Asian option; the most basic are listed below:
Fixed strike (also known as an average rate) Asian call payout
where A denotes the average price for the period [0, T], and K is the strike price.
Official source
About this result
This page is automatically generated and may contain information that is not correct, complete, up-to-date, or relevant to your search query. The same applies to every other page on this website. Please make sure to verify the information with EPFL's official sources.
Related courses (32)
MATH-470: Martingales in financial mathematics
The aim of the course is to apply the theory of martingales in the context of mathematical finance. The course provides a detailed study of the mathematical ideas that are used in modern financial mat
HUM-228: Musical studies B
Ce cursus particulier - dont l'admission est sujette à l'acceptation d'un dossier de candidature - offre à l'étudiant engagé dans des études en musique de haut niveau en parallèle à ses études EPFL la
HUM-415: Musical studies II
Ce cursus particulier - dont l'admission est sujette à l'acceptation d'un dossier de candidature - offre à l'étudiant engagé dans des études en musique de haut niveau en parallèle à ses études EPFL la