Asian options vba code

Average strike options have a strike equal to the average value of the underlying asset. Tweet The Asian option payoff depends on the average price of the underlying asset over a specific period of time. The following equations give the payoffs for Asian options. The problem with Asian options and most exotic options is that the option price cannot be calculated by simply plugging numbers into the Black-Scholes equation because the payoff depends on the path that the stock price takes until the maturity of the option. The payoff depends on the average of the underlying price. The Kemna-Vorst method provides a closed form pricing solution to geometric averaging options [2]. 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.

See the European option pricing article for a comparison: Variance reduction technqiues have been developed in an attempt to minimize the number of simulations required to generate an accurate option price. This states that the methods should be implemented by these classes: It brings all of the previous components together to produce an output for the option price based on some default parameters. Before that however, I will brief explain how Asian options work and are priced by Monte Carlo. Let's compare the price of Asian options against their Vanilla counterpart. This discounted price is then the final price of the option, with the above parameters:

A small increment of time. Consider for example, the effect of variations in the price of the underlying asset. In this instance I have elected to use a procedural approach because I don't feel that delving into the complexities of random number generation classes has a beneficial effect on learning how Asian options are priced at this stage. 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. Option Pricing - Monte-Carlo Methods Monte-Carlo methods are ideal for pricing options where the payoff is path dependent e.