1. Ceteris paribus, should the Asian option be price lower than the European opt
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1. Ceteris paribus, should the Asian option be price lower than the European option, why or why not? 2. Ceteris paribus, should the barrier option be harder to hedge than th e European option, why or why not? 1. Ceteris paribus, should the Asian option be price lower than the European option, why or why not? 2. Ceteris paribus, should the barrier option be harder to hedge than th e European option, why or why not? 2. Ceteris paribus, should the barrier option be harder to hedge than th e European option, why or why not?Explanation / Answer
Ans1: Asian option is a special type of option contract which is totally different from Europeon and American option. The payoff of Asian option is determined by the average underlying price over some pre-set period of time. However in case of American and Europeon option contract the payoff of the option contract depends on the price of the underlying instrument at exercise.As the normal option the Asian Option is also having two type of option and these are Put( Right to sell) and call(RIght to buy).
There is an advantage of Asian option contract that Asian option involve relative cost of Asian Option however European and American option do not involve the same and also Asian Option reduce the risk of Market Manipulation of a underlying instrument at meturrity.
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