Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. accounting
  3. an asian option pays the maximum of either 0 or th

An Asian option pays the maximum of either 0 or the difference between the final...

80.2K

Verified Solution

Question

Accounting

An Asian option pays the maximum of either 0 or the difference between the final stock price and the average stock price along the relevant price path. For example, assume that the price path is 100, 80, 100. The average price is 280/3, and the option would pay (100-(280/3))=20/3. If the price path is 100, 125, 100, the average price is 325/3, and the option would pay 0.

So given all this, you have an Asian option that expires in 2 periods where the stock price in period 0 is 90. The stock either moves up with u=1.15, or down with d=1/1.15. The interest rate is 1/19. What is the value of your option today in period 0?

Answer & Explanation Solved by verified expert
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students