Asian Options Can Be More Expensive

26 Pages Posted: 6 May 2005

See all articles by George L. Ye

George L. Ye

Beijing Institute of Technology at Zhuhai

Date Written: May 1, 2005

Abstract

This paper examines a commonly accepted proposition that Asian options are cheaper than their plain vanilla counterparts. By deriving and analyzing the boundary conditions of options as the volatility goes to zero, we show that this proposition may be violated for call options if the options are dividend-unprotected, and if the dividend yield of the underlying stock is higher than the interest rate. It may also be violated for put options if the dividend yield of the underlying stock is lower than the interest rate, or if the options are dividend-protected. The sufficient conditions causing Asian options to be considered more valuable than their plain vanilla counterparts are provided.

Keywords: Asian option, exotic option, option pricing

JEL Classification: G13

Suggested Citation

Ye, George Longsen, Asian Options Can Be More Expensive (May 1, 2005). Available at SSRN: https://ssrn.com/abstract=714523 or http://dx.doi.org/10.2139/ssrn.714523

George Longsen Ye (Contact Author)

Beijing Institute of Technology at Zhuhai ( email )

6 Jinfeng Rd
Zhuhai, Guangdong 519088
China
+8618666930866 (Phone)

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