FRM Part I · FRM Exam Part I · Exotic Options
An average-price Asian call has a strike of 50. The underlying is observed at four quarterly dates with prices 48, 52, 58 and 54. What is the payoff using the arithmetic average of the four observations?
The payoff is 3. The arithmetic average of the four prices is 53, and the average-price call pays the excess of that average over the strike of 50.
- A5
- B4Correct
- C3
- D8
Explanation
Average = (48+52+58+54)/4 = 212/4 = 53. Payoff = max(53-50, 0) = 3. Checking: the sum is 212, so the average is 53, and 53-50 = 3.
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