We also list some pseudo VBA code. Discrete Fixed Strike Arithmetic Average Options A fixed strike arithmetic average option1 is an option where the strike is set on the deal date and the average is taken of the underlying asset to determine the payoff. Many approximation methods2 have been proposed [Hu 06; Ha 07]. Vorst proposed an approximation where he adjusts the strike price of the option using the geometric average [Vo 92].
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. The averaging tends to lower volatility with a greater averaging period resulting in a lower volatility. Hence Asian options are cheaper than their European or American counterparts Asian options are, however, difficult to price.