easy · Quantitative Finance derivatives
Why is an arithmetic Asian option generally cheaper than a standard European vanilla option on the same underlying?
- The averaging process reduces the effective volatility of the payoff variable.
- It is less sensitive to the risk-free rate than a vanilla contract.
- It can only be exercised at a single fixed point in time, unlike averaging.
- The dividend yield is subtracted from the computed average price before payoff is set.
Sign up free to see the explanation and track your rank →
More Quantitative Finance derivatives practice
- If the underlying stock price S moves by +$2.00 over a very short interval, what is the es
- If the risk-neutral probability of an up move is p = 0.6 and the risk-free rate is zero, w
- When pricing a 'Digital' (or Binary) call option near expiry with the spot price very clos
- In the context of the Black-Scholes PDE, the Greek 'Theta' (Theta) measures the sensitivit
- When calibrating a Heston stochastic volatility model, a pra… — Does this calibration sati
- Based on put-call parity, what is the arbitrage-free relationship?
- Given a continuously compounded risk-free rate of 5%, what is the price of the correspondi
- If the risk-free growth factor is e^rT = 1.02, what is the risk-neutral probability p^* of