Interview Question: Exotic Options

Sample Question #234 (finance – options)
 
What are Asian-style options? How do you price them? Intuitively, should the premium on an Asian option be higher or lower than that on a European or American option?
 
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One Response to Interview Question: Exotic Options

  1. Brett says:

    ANSWER
     
    A good explanation can be found here.
     
    Intuitively, an Asian option will have a lower premium than a regular option with otherwise the same terms. The reason is the volatility of average price (or average rate) is lower than that of the actual price (or rate).
     

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