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 澳洲幸运5官方开奖结果体彩网:(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 asse🌟t at the average price instead of the spot price.

Asian options are also known as average options📖.

There are various ways to interpret the word “average,” and that needs to be specified in the 澳洲幸运5官方开奖结果体彩网:options contract. Typically, the aver🌞age price is a geometric or arithmetic average of the price of the underlying asset at discreet intervals, which are also specified in the options contract.

Asian options have relatively low 澳洲幸运5官方开奖结果体彩网: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 澳洲幸运5官方开奖结果体彩网:commodities, etc.

Breaking Down Asian Option

Asian options are in the "澳洲幸运5官方开奖结果体彩网:exotic options" category and are used to solve particular business problems that ordinary options cannot. They are constructed by tweaking ordinary options in minor ways. In general (but not always), Asian options are less expensive than their standard counterparts, as the volatility of the average price is less than the volatility of the 澳洲幸运5官方开奖结果体彩网:spot price.

Typical uses include:

1. When a business is concerned about the average 澳洲幸运5官方开奖结果体彩网:exchange rate over time.
2. When a single price at a point in time might be subject to 澳洲幸运5官方开奖结果体彩网:manipulation.
3. When the market for the 澳洲幸运5官方开奖结果体彩网:underlying asset is highly volatile.
4. When pricing becomes inefficient due to thinly traded markets (low liquidity markets).

This type of option contract is attractive be♐cause itౠ tends to cost less than regular American options.

Asian Option Example

For an Asian 澳洲幸运5官方开奖结果体彩网:call option using arithmetic averaging and a 30-day period for 𓂃sampling the ಌdata.

On Nov. 1, a trader purchased a 90-day arithmetic call option on stock XY🐈Z with an exercis🦩e price of $22, where the averaging is based on the value of the stock after each 30-day period. The stock price after 30, 60, and 90 days was $21.00, $22.00, and $24.00.

The arithmetic average (mean) is (21.00 + 22.00 + 24.00) / 3 = 22.33.

The profit is the average minus the strike price 22.33 - 22 = 0.33 or $33🍸.00 per 100 share contract.

As with standard options, if the average price is below the 澳洲幸运5官方开奖结果体彩网:strike price, the loss is limited to the p✤remium paid 𓄧for the call options.