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This articles explores Asian options, and offers an Excel spreadsheet based on geometric and arithmetic averages. Of the many types of exotic options that are available for investors, Average Rate Options or, as they are better known, Asian Options are some of the most practical.

Asian options are priced based on the average price of the underlying instrument. Both the strike value and expiration value can be calculated from the average value over a period of time. Asian options are no more difficult to understand than their vanilla counterparts. Asian options are, however, difficult to price.

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. Asian options are largely used for derivatives based on commodities such as crude oil and currencies. Their history dates from , when they were used to price crude oil derivatives in Tokyo.

Asian options are averaged arithmetically or geometrically, and either of these approaches can be weighted. The following equations give the payoffs for Asian options. However, there no closed form solutions for pricing Asian options with an arithmetic average.

Some authors have proposed approximations for this problem, including Turbull and Wakeman and Levy Numerical approaches, such as binomial lattices or monte carlo simulation, are also used. Download Excel Spreadsheet to Price Asian Options locked spreadsheet, only change parameters and view results. Does this spreadsheet help? Thanks for the calculator. This only really works for valuation of options where we are already in the averaging period, yes?

Hi Samir, First sorry if the qestion apears in two sections.

Asian Options - Tutorial and Excel Spreadsheet

I bought the sheet hope that helps a bit: I have a similar question as duderino. I both want to value the option before the averaging period start and in the averaging period before maturity.

Asian Options - Tutorial and Excel Spreadsheet

I thought this formula was for valuing before averaging period started? I thought that was the time until the averaging period starts?

The averaging price is first known at maturity so it must be something different? You wrote average price sampled over time so is that the future prices for each time in the averaging period?

Do you have the formula expressed in non excel format so i can try to link them? Thanks alot in advance and appreciated the work done. If you link to investexcel. I just bought an asian option file and it has password on it. Could you check or help me look in the right place? Your email address will not be published.

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Home Option Pricing Asian Options — Tutorial and Excel Spreadsheet Asian Options — Tutorial and Excel Spreadsheet February 23, at 8: February 28, at Hi, Does anyone can help to find vba for building excel trinomial tree, please? February 29, at March 7, at Hi Samir, Thanks for the calculator.

December 12, at 6: July 13, at 5: August 24, at 9: April 4, at 7: September 18, at 6: November 13, at 7: Hi Samir, I just bought an asian option file and it has password on it.

November 15, at 4: What specifically did you buy? Leave a Reply Cancel reply Your email address will not be published. Please leave these two fields as-is: To be able to proceed, you need to solve the following simple math so we know that you are a human: Like the Free Spreadsheets? This site takes time to develop. This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Twitter Tweets by investexcel.