Are Asian options cheaper?

Asian options are usually (but not always) cheaper than standard American or European options. This is because Asian options are priced using an average price rather than the spot price of the underlying commodity on the date of expiration. Because an average price is used, this makes Asian options less volatile, and consequently, generally cheaper.

How are Asian options priced?

Rather than using the spot price of the underlying stock or commodity on the date of the option’s expiration, Asian options are priced using an average price over the preceding period of time. While there are different methods for calculating the average price, it’s usually calculated as either the arithmetic or geometric mean of the underlying stock or commodity.

Why can’t Black-Scholes models value Asian options?

The Black-Scholes pricing model is one of the most common ways to price standard American or European options. To price options, the Black-Scholes method makes a variety of assumptions about the price of the underlying stock. One assumption required by Black-Scholes is that the stock’s price will move following something called Brownian motion. Because arithmetically-priced Asian options do not follow Brownian Motion, the standard Black-Scholes pricing model does not apply.

3 Types of Credit

What Are Asian Options and How Are They Priced?

https://www.sofi.com/learn/content/asian-option/

Asian options (also known as average strike options or average options) are a type of exotic option that is priced according to the average price of the underlying commodity, as opposed to the spot price. Read on for how they’re priced, how they work, pros and cons, and more. What Is an Asian Option? Asian […]

Guide to Synthetic Longs

https://www.sofi.com/learn/content/synthetic-long/

A synthetic long is an option strategy that replicates going long the underlying asset. The strategy is used by bullish investors who wish to use the leverage of options to establish a position at a lower capital cost. As with going long in a particular asset, potential profits are unlimited, however, potential losses can be […]

Guide to Sales Tax

https://www.sofi.com/learn/content/what-is-sales-tax/

Taxes are inescapable: You likely have income taxes withheld from every paycheck; if you’re a homeowner, you pay your property taxes; and yes, when you tap your card at the register, you pay that additional sales tax.You may wonder why you have to fork over that extra bit of your hard-earned cash. This guide will […]

Pros and Cons of Long-Term Personal Loans

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Long-term personal loans can be an attractive option if you’re facing large expenses like medical bills or home repairs. By spreading out repayment over a longer period of time, long-term loans may allow for lower monthly payment amounts that can make major costs more affordable. However, long-term loans can have drawbacks, too. They may have […]

Guide to Moneyness in Options

https://www.sofi.com/learn/content/moneyness/

When you’re talking about moneyness in options, certain phrases capture where the strike price is in relation to the current price of the underlying asset. Options are either in-the-money (ITM), out-of-the-money (OTM), at-the-money (ATM), or near-the-money. You can also have options that are deep-in-the-money or far-out-of-the-money. Generally, a call option is in-the-money when the strike […]

“3 Types of Credit”

What Are Asian Options and How Are They Priced?

Guide to Synthetic Longs

Guide to Sales Tax

Pros and Cons of Long-Term Personal Loans

Guide to Moneyness in Options

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